UK housing market won’t recover to pre-GFC levels before 2020: PwC

The UK housing market won’t return to pre-GFC conditions before 2020, according to the latest report by PwC (PricewaterhouseCoopers).

The July 2012 UK Economic Outlook report says nominal house prices may return to 2007 levels in the middle of this decade but in real terms, prices won’t bounce back until the mid-2020s.

By 2015, nominal house prices will still be 8% below 2007 peak levels, while in real terms they will be 24% lower, says PwC.

By 2020, UK house prices are expected to be 30% more than 2007 levels, though still 7% below peak levels when inflation is taken into account.

In real terms, the pre-crisis peak levels might not be seen until 2024.

As economic uncertainty persists, the market will remain flat in the short term, while the eurozone crisis could lead to double-digit declines in house prices over the next couple of years. The market should start to recover later in the decade.

"House prices should recover later in the decade as confidence is gradually restored, credit conditions ease for first-time buyers and underlying housing supply shortages reassert themselves,” says PwC economist John Hawksworth.

Hawksworth calls for policy to encourage investment in houses for rental as more people will be unable to participate in the private housing market without affordable rental housing or government assistance.

“As house prices are likely to stay high relative to earnings by historic standards, and credit is likely to remain less readily available than before the crisis, we estimate that a single person leaving university today is unlikely to be able to afford their first house until their late 30s without financial assistance from their parents or others."

Hawksworth says the outlook for the UK as a whole remains cloudy but there is scope for improvement.

Although it is forecast to be flat over 2012, the UK’s GDP is expected to pick up in 2013.

“We expect London and the south east to lead this gradual recovery, but all regions are projected to see at least moderate average growth in 2012 and 2013. However, risks from further storms in the eurozone need to be taken into consideration and businesses should make appropriate contingency plans for this," Hawksworth says.