by Rob Hosking
Thursday 28th May 2009
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The Treasury's economic outlook for the year, released in today's budget, forecasts a shrinkage in residential investment of 25% for the year to March and a further 23% contraction the following 12 months.
"There have been signs of a slight recovery in house sales over April, but...it is unlikely that the housing market will stage a significant recovery any time soon, with the risks tilted towards further declines in house prices as 2009 progresses."
The Treasury outlook forecast house prices to fall 8% for the year to March 2010 and a further 4% the following year. This follows a 9% contraction in the 12 months to March this year.
On top of this, banks are taking a tougher approach to risk, requiring higher deposits than they were a year ago.
"Funding for property developers remains constrained."
Although the drops in interest rates are expected to have some counterbalancing effect, the expectation is that people will use the headroom provided to pay off existing debt. There has also been an increase in "precautionary saving" in more uncertain economic times.
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