KUALA LUMPUR: House prices in the UK are set to plunge again following a three-month upward trajectory boosted by a shortage of property for sale, according to a property economist from a macroeconomic research consultancy.

This is because the bigger picture is still “fundamentally weak”, with rising unemployment and market overvaluation looming, said Capital Economics property economist Seema Shah.

Referring to the September Halifax house price index, she said despite gaining a seasonally-adjusted 1.6% in September and 2.3% in 3Q, prices are still 7.4% lower than a year ago and 18% lower than their August 2007 peak.

“Unemployment is likely to continue rising long after the recession ends. This will also put heavy downward pressure on average earnings,” she said, adding that negative pay growth may result next year.

On the shortage of homes, she said: “Anyone needing to buy a property has had to pay more to complete a sale. Yet, this imbalance will not be sustained indefinitely.”

She added that continued improvement in market conditions will encourage more sellers to put their property up for grabs, resulting in loosened market conditions.

“At the same time, buyer interest is not immune to the weak economic outlook,” she said.

She added that the housing market will not benefit from an improved economic outlook as the resulting hike in interest rates will reduce affordability while financial tightening will reduce household disposable incomes.

“The upshot is that with the housing market still overvalued, prices are more likely to fall than to rise next year,” she said.

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