UK: Traders predict house prices will fall by 50% in four years

The slide in house prices will continue for at least three years and crush the value of a home by almost 50% in real terms, according to a key index of property price futures. Indications from futures trading on long term property prices shows that the average UK home will recover its current value only in 2017.

By the end of this year prices will be down by 10% and by a further 10.5% in 2009, according to the index. Prices will keep dropping through 2010 and cut values by 23.5% when they hit rock bottom in 2011. House prices will then begin a slow climb back to current market values over a period of about six years.

If an average retail price inflation rate of 4% is included in the calculation and in addition the 8% drop in prices over the last eight months already registered by the Halifax House Price Index, the fall in values over almost four years will reach 47.5% in real terms..

Cinderford building firm Bell Homes has laid off 100 workers as the new housing market dries up.

They are one of many firms feeling the pinch as house sales slump.

Group chairman Keith Bell said: "It's pretty grim at the moment. We've had to lay off more than 100 people."Major developers like Persimmon Homes, who we do a lot of work with, have stopped building.

"We are still building houses on small plots in the Forest but are not buying any new land."..

One of the country's leading house builders is making hundreds of workers redundant amid the slump in the housing market.

Persimmon Homes, based in Fulford, York, had already announced it would not be opening any new sites until house sales began to improve.

The firm blamed the lack of cheap mortgages and a fall in consumer confidence for the downturn.

Work on about 30 new sites nationally has been postponed.

The credit crunch is hitting housebuilders, with many half-built properties being mothballed.

Joey Gardiner, housing and regeneration editor at Building magazine, said: "I've heard reports that what they tend to do is to get to a stage and make the buildings watertight so they don't deteriorate. They put a roof on and windows in but they won't put in kitchens and furniture because they are expensive. If they don't think they can sell the last thing they do is spend more cash.

"Construction companies are returning to a more traditional model. They build a couple of houses and when they're sold, they build more."

Countryside Properties plans to cut its development programme in half in the north of the country. The company said its house starts across the whole country would fall by up to 1,000 in 2007/08 to about 2,000, due to the effect of the credit crunch. Countryside's chairman, Alan Cherry, said: "We've decided to delay starts on some projects until there's more confidence in the market. On others, where we are finishing current stages, we're not starting the next one."

"Our likely starts will be about 30% down next year - I suspect in the north output will be down by more like 50%," he added.

Royal Institution of Chartered Surveyors (RICS) latest construction survey, released last week, said that the "recent surge in building completions will be reversed. There are clear signs that the number of properties completed will continue the decline that started in the first quarter of this year.

"Further weakness is highly probable. New orders, when smoothed by a six- month moving average, have fallen 15% in the year to February," the survey said.

When construction is on the downturn, firms are quick to shed workers.

The Home Building Federation Steve Turner said: "The knock-on effect of not building houses is not wanting people to build them. This year there has been a downturn in the number of houses being built. Therefore, there have been job losses.

"Gordon Brown said he wants to build 3 million more homes by 2020 but the current economic situation dictates that we'll see the number of homes being built decrease."

Bellway and Barratt demand cuts in cost from suppliers and Persimmon closes three offices

Housebuilders across the UK have this week introduced a wave of emergency measures to cope with tough market conditions caused by the credit crunch.

Several firms have admitted they have followed Taylor Wimpey plc lead and held crisis talks with supply chains, while Persimmon is planning to close three regional offices.

Barratt Homes is telling its supply chain it will cut costs by up to 5%, with the precise figure varying between regions. Bellway Homes has also asked for a 2.5% discount on all subcontract and supplier accounts.

Other housebuilders, including Redrow and Crest Nicholson, said they were talking to suppliers.

The disclosures come after it emerged last week that Taylor Wimpey was cutting payments to suppliers on existing contracts by 5%.

Taylor Wimpey said in a trading update that it expected a “subdued start” to the spring selling season, although it denied reports that it intended to offload its construction division to raise money.

Barratt said discussions with its supply chain had begun after the acquisition of Wilson Bowden Ltd last April and were continuing.

Barratt has also sold 51 of its homes in Kent at below market value to Hyde Housing Association to try to bolster its sales. The Housing Corporation, the government’s social housing agency, has asked housing associations to see if they can reach deals to support the delivery of its social housing development targets (see above).

In a letter seen by Building, Bellway Homes has asked subcontractors and suppliers for a discount of 2.5% on all accounts with immediate effect. The company said it was reviewing expenditure and would “expect assistance” from suppliers. A spokesperson said: “We have put the point to suppliers requesting the 2.5% discount, so we’d expect them to come and negotiate with us.”

Persimmon will close its office in Beverley, in the East Riding of Yorkshire, and the Mercia office in Cheshire. It will also close the south-east office of its upmarket Charles Church brand.

The Royal Institution of Chartered Surveyors (RICS) says that gazundering, the controversial practice of buyers dropping their offer price after they have agreed to purchase a property, has returned. While prices have started to fall in earnest only in the past two months, the report makes clear that the property market is in a dire state. Buyers are refusing, or unable, to hand over any money to purchase a house. "The continuing lack of demand in the housing market is reflected in the collapse in transactions," says the report."