Prices will be about 3 percent lower at the end of 2012 than in the fourth quarter of this year, the London-based group said in an e-mailed report today. A survey of estate agents shows northern England will have the weakest performance, while prices in the capital will “move sideways,” RICS said.
“The general economic climate is likely to be the biggest influence on the residential property market,” RICS Chief Economist Simon Rubinsohn said in a statement. “Prices could edge a little lower as unemployment continues to rise. However, the lack of supply in the market is likely to prevent any significant house-price declines.”
Demand for homes has weakened as banks restrict lending and Britons are squeezed by government spending cuts and tax increases aimed at narrowing the budget deficit. The economy will be “broadly stagnant” during the first half of next year as unemployment rises, preventing a “material upswing” in new buyer enquiries, RICS said.
The weak economic start to the year is likely to prompt the Bank of England to expand its asset-purchase program again and keep the key interest rate at a record low of 0.5 percent until 2013, the group said. The central bank raised the target for bond buying by 75 billion pounds ($118 billion) to 275 billion pounds in October.
RICS said the U.K. property market’s performance in 2012 will be dependent on developments in the euro area and there is a risk of a “sharper adjustment.”
Housing transactions will post a “slight increase” to about 880,000 in 2012, still less than half of the 1.67 million achieved in 2006, before the financial crisis started, according to RICS. “Mortgage lending is likely to remain subdued, which will limit the scope for improvement,” it said.
In a November survey of estate agents’ house-price expectations in 11 regions for the next year, all but London had more respondents saying values will drop than those seeing gains. Northern England, Yorkshire and East Anglia had the largest proportions of agents predicting declines.
“One driver of the London market has been the continuing appetite of foreign investors looking for safe havens,” RICS said. “Ongoing political and financial-market turmoil around the globe suggests that this factor will remain an influence on the market even if it is not quite so powerful as it has been.”
The RICS house price forecast is based on an index being compiled by the Office for National Statistics.
To contact the reporter on this story: Scott Hamilton in London at firstname.lastname@example.org
To contact the editor responsible for this story: Craig Stirling at email@example.com