Morgan Stanley predict 10% house price falls this year

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by Kay Murchie

Analysts at US investment bank Morgan Stanley, predict that property prices will fall by 10% this year and 5% in 2009 and, as a result, will push more than 1 million homeowners into negative equity (where their home is worth less than their mortgage).

Morgan Stanley said our base case is for a 15% fall in nominal prices over two years, our bear case looks for a 25% fall over two years.

Last month’s Great Housing Market Debate saw 150 industry representatives say they believe that property prices will decline in the next 12 months.

Furthermore, Neil Woodford of investment house Invesco Perpetual, recently said property prices across the UK will fall 8% to 10% this year.

In the early 1990s, house prices declined by 10.6% over a prolonged period, leaving owners sitting on houses they were unable to sell without the risk of losing large sums of money.

Morgan Stanley’s predictions are similar to that of Vince Cable, deputy leader of the UK Liberal Democrats. He said by next April, 3 million British families could be plunged into negative equity.

Mr Cable’s warning is based on the assessment that there are around three million people whose mortgage currently accounts for 90% or more of the value of their home.

If prices fall by 10% over the next 12 months, they will find themselves in the black hole of negative equity, concluded Mr Cable.