Catherine Penman, head of research, Carter Jonas, commented: "The stalling economic situation reinforced by the Comprehensive Spending Review, weak outlook for mortgage demand and the imminent public sector cutbacks collectively imply a further weakening of demand in residential property over the year to come."
"Although house prices have only fallen by less than 2% in 2010 across the UK as a whole, this disguises a wide variation in activity. A notable improvement in both pricing and sentiment was evident during the first half of the year which has since been counteracted by an increasingly cautionary tone and heavy downward pressure on prices during the second half of the year. This negative pressure is expected to continue with an estimated 5% decline in house prices across the UK expected in 2011 as job losses intensify.
"A regional divergence will become increasingly apparent moving forwards with the country house market. Whilst not immune to the national housing market slowdown, it is expected to be sheltered to an extent. Good quality product priced at realistic levels will continue to sell well with stock levels remaining generally low and demand resilient throughout the prime markets.
"Central London will continue to lead the pack in terms of recovery during 2011 due to its reliance upon the high earning financial and business services sector and a strong international investor profile. With an acute shortage of stock registered in most London markets, activity is likely to reduce over the forthcoming months. That said, the volume of buyers remains consistent. There has been a notable shift towards the purchasers' perspective and away from the domination of the vendor which has been the main characteristic over the last two years.
""Best in class" product is currently achieving in excess of 2007 prices, although potential purchasers remain very price sensitive and there is a widening price differentiation between the best and the rest. Pricing will become increasingly sensitive as we move into the seasonally busy spring market and we anticipate London house prices to increase circa 5% during 2011.
"In light of the continuing difficult economic climate and funding restraints, demand within the central London rental market is forecast to remain strong during 2011. That said, applicants remain price sensitive and whilst rental levels are projected to increase, it is predicted to be at a lower rate than witnessed previously in 2010, at around 3% to the year end.
"With austerity measures and public sector cutbacks set to firmly take hold over the next year, UK house prices are expected to fall further in the short-term. Inevitably, isolated bubbles of activity will buck the trend although overall, we predict a fall in values of circa 3% in 2012."
Source: Carter Jonas