House prices will continue to fall for another 12 months and will not bounce back to last year's levels until at least 2013, a leading economics group said today.

The value of the average home will fall by 25 per cent, or £50,000, to reach a low of £149,000 in autumn next year, despite the prospect of much lower interest rates, the Centre for Economics and Business Research (CEBR) said. House prices have already tumbled by more than 12 per cent in the past year, according to figures from Halifax, the lender. The CEBR, which has traditionally been bullish about the outlook for the housing market, said that prices may start to rise before Christmas next year, but that by 2012 the average value of a property would still be 3 per cent lower than last year.

Other economists have made even gloomier forecasts for housing. Capital Economics, the consultancy, has said that prices would fall by 35 per cent, peak to trough, although it also forecast a tentative recovery in 2010.

New evidence has emerged that homeowners are facing up to the realities of the housing market slump and a looming recession and accepting that their properties have fallen in value.

Hometrack, the property data business, found that the number of house sales agreed rose 5.3 per cent in October, the first increase since January. It said that the rise showed that resigned sellers are now willing to accept lower offers from bargain-hunting buyers. However, the new realism has done nothing to boost demand, according to the data, which showed a 3.3 per cent fall in buyers registering with agents.

The CEBR predicted that activity will fall again next year, with only 900,000 house sales being completed, down from 1.5 million last year, as shaky consumer confidence is further depressed by the economic downturn. However, it said that sales volumes would pick up sharply in 2010.

Ben Read, managing economist for the CEBR, said: “With high unemployment and confidence clearly shaken, while some buyers will return to the market, we don't expect to see prices come back quickly, despite improving credit conditions.”

Hometrack said that house prices have continued to fall — by 7.3 per cent this year and 1.3 per cent since September, dragged down by the continuing drought of mortgage finance.

Homeowners in London and the South West suffered the steepest price declines, of 8.6 per cent and 8.1 per cent, respectively, in the past 12 months, a Hometrack survey found. Owners of flats and maisonettes have suffered the sharpest falls overall, with average prices down by 8.3 per cent, compared with an average 6.8 per cent decline for detached properties.

Richard Donnell, director of research for Hometrack, said: “The outlook for demand is set to remain weak as consumers focus their attention on the economy. The expectation of a recession and rising unemployment will further undermine demand for housing and continued price falls are inevitable in the months ahead.”

A long road back

Knight Frank

UK house prices peaked in late 2007 and have fallen sharply since then. Knight Frank, the estate agent, believes that Britain is at least halfway through a process of price falls, with about 15 per cent of an estimated 30 per cent peak-to-trough decline already factored into prices. It expects prices to bottom out in late 2009 or early 2010. It forecasts average prices will not return to their 2007 peak until 2015, led by central London (2012) and concluded by Northern Ireland (2019).

Capital Economics

The consultancy had expected house prices to fall 35 per cent by the end of 2010, but recently concluded that the same drop would take place in a much shorter period. Prices are then predicted to stagnate for 18 months before a tentative recovery begins in 2011.

Savills

The estate agency expects house prices to fall by 25 per cent in 2008 and 2009, but expects the national picture to recover strongly by 2012, when, it says, prices will again reach the peak seen in 2007.