Property in 2009: Economists Divided

More than six in 10 economists believe 2009 will be a year in which to avoid buying property, with prices falling into 2010.

This still leaves a significant minority who think that prices will be close to their nadir towards the end of this year as the recession and credit constraints ease.

Economists are divided on whether falling prices will depress the economy further or are a symptom of more general weakness.

But a majority think the poor state of the housing market will add to the wider gloom in 2009, not least because housing construction, durable goods sales and services related to housing transactions are such a large part of the economy.

The overriding feeling among the panel is that house prices are still too high compared with incomes and credit conditions. John Calverley of Standard Chartered says: "The key thing is that a 50 per cent decline in prices only takes many values back to where they should be. It does not make them cheap."

Jonathan Loynes of Capital Economics says: "The experience of previous housing downturns suggests that, even after prices stop falling, it could be some time before they start to rise again at any meaningful rate."

Many, such as Andrew Oswald of Warwick University, believe the market should be reaching a bottom towards the end of the year. But Prof Oswald is cautious: "As I called the house-price crash too early, I am particularly conscious of the difficulty of predicting the turn of the herd."

David Miles of Morgan Stanley sees a chink of light. "Assuming that credit availability improves somewhat, a further sharp decline in house prices over 2009 does not seem the most likely outcome."

A few, mostly academics such as Patrick Minford of Cardiff Business School, believe 2009 will be a good year for buying property. Dieter Helm of New College Oxford sees late 2009 as a good time to buy because "house prices are likely to be much lower and the real assets may increasingly be seen as a protection against currency debasement".

Robert Barrie of Credit Suisse supports the Bank of England's case that property is a symptom of other economic events rather than a cause. "The housing market is a dial on the dashboard rather than a key component of the economy's engine.

Story from The Financial Times

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