Housing turnover to fall by 35pc

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Problems in the housing market are just one of the reasons the economy is in danger of going into recession, according to an economic forecasting group.

The latest quarterly update by the ITEM Club, which is sponsored by Ernst & Young, says economic prospects have deteriorated badly over the past three months because of rises in oil prices and food and energy costs.

It expects house prices to fall significantly further and is predicting a peak-to-trough decline of around 15 per cent. It said the biggest corrections would be outside London and singled out Northern Ireland as being particularly at risk.

And in more bleak news for embattled house builders, it adds: "We expect housing turnover to fall by about 35 per cent this year and a further 10 per cent in 2010."

A separate study by MTW Research said as much as £5.5 billion could be wiped off the value of the house building industry before the end of the year.

Analysts said rapid growth in borrowing over the past few years coupled with a collapse in demand for new housing was likely to result in the market losing as much as 75 per cent of its value by the beginning of 2009.

But the report said the contraction was likely to be short-lived. Growth was forecast to return in 2010, with increased sales turnover giving rise to an overall increase in net worth for the industry.

By 2012 the sector should achieve a value of just under £11 billion and return to levels witnessed in 2005/06, it said.