House prices to drop 15 per cent

Two leading analysts at Deutsche Bank have warned that house prices may slump by up to 15 per cent in 2005.

17:03 23 November 2004

Two leading analysts at Deutsche Bank have warned that house prices may slump by up to 15 per cent in 2005.

In a note distributed to investors, Ciaran Barr and George Buckley argued that the Bank of England would have to start lowering interest rates next year to avoid further price drops.

Commenting on the prediction, Mr Buckley told Bloomberg: "House prices will have to adjust to get back to some level of normality.

"We're expecting declines in prices in the near term. If you look at every single affordability measure they're all overvalued.'

While a full-blown housing market crash remains a clear risk, it "is not the central scenario", the analysts explained. Rather a short correction followed by several years of house price stagnation is most likely.

The prediction potentially signals further woe for homeowners following the publication of a report by the property website Rightmove yesterday, which highlighted a 1.7 per cent drop in asking prices in the four weeks up to the end of November 10.

Additionally, this weekend news leaked that Barclays expects house prices to fall eight per cent next year and the Royal Institute of Chartered Surveyors (RICS) is reporting that more of its members are seeing declining prices than at any time since 1992.