The Centre for Economics and Business Research (CEBR) has issued a stark warning of a drastic 13.8% drop in average house prices next year.
The economists warn the current market is “defying gravity” and is at odds with the wider economic turmoil.
The CEBR said this disconnect is due to the increased Stamp Duty threshold, the release of pent-up demand from before the pandemic, a ban on mortgage repossessions and the job retention scheme that is support incomes.
Pablo Shah, senior economist at the CEBR, said: “What most of these factors have in common is that they are transitory in nature.
“Indeed, the coronavirus job retention scheme was cut after August and it, as well as the ban on mortgage possessions, is scheduled to end on October 31, while Stamp Duty will revert to its original level in April 2021.
“Moreover, pent-up demand from the period of lockdown will eventually work its way out of the system in the coming weeks.
“Our analysis suggests that prices will start to fall significantly towards the end of the year and the first half of 2021, though there might be a short spike as the Stamp Duty reduction comes to an end, with average house prices forecast to be 13.8% lower in 2021 than in 2020.”
Estate agents, perhaps unsurprisingly, are less pessimistic about their being such a drastic cut.
Ed Mackenzie Smith, chairman of Mackenzie Smith Properties, told EYE: “There are a lot of forces shoring up a reduction in values.
“Low-interest rates take the pressure off vendors needing to sell. If they don’t get their price they can ride it until their position, or the market improves.
“We have a mature rental market, this means vendors can take a longer-term view and let out their property rather than be forced to sell.
“Although there is a Stamp Duty incentive in place, historic rates have pushed people into extending and improving their homes rather than moving.
“This has cut off the supply of secondhand property coming to the market and as such, agents have suffered from supply and not the demand for property.
“Even during the banking crisis of 2008, the supply of property did not increase to a level that provided too much choice. It was the general uncertainty that caused buyers to hold off. Values did fall but recovered very quickly in 2009.”
Simon Wilkinson, senior partner at the Wilkinson Partnership, suggested the divorce or separation rate could increase amid the lockdown and the pandemic, leading to more houses going on sale.
He also highlighted other issues such as a surge in births meaning more people need to move, a change in lifestyle and working patterns and the possibility of a V-shaped economic recovery.
Meanwhile, Iain McKenzie, chief executive of The Guild of Property Professionals, warned against the market talking itself into a crash.
He said: “I see the current rise in housing prices as a short-term spike with it returning to a more fluid marketplace in the next two or three months.
“I don’t predict we will see any significant falls as housing market has been resistant for a number of years despite having to contend with things such as Brexit and now the pandemic.
“The property market has a remarkable ability to sustain itself.
“Of course there are some bumps along the road with the rise in unemployment and the end of the furlough scheme, but if there is a decline in the future, it will be a short decline and the market should bounce back very quickly because of positive consumer sentiment and pent up demand.”