New Scottish housing boom forecast in three years as confidence returns
Savills believes the new boom will come within three years as homes become more affordable and banks ease restrictions on mortgage lending as the economy starts to recover.
With stock markets hit by the credit crunch and the recession, property will also become a less risky and more attractive target for cash-rich investors.
After more than a decade of record growth in Scotland – annual house price inflation at one stage reached 21% – values fell 14% in 2008, according to Savills. Values are now likely to fall by a further 6% in 2009 but start to turn upwards in 2010 by 2%. The accelerating market will then rise 8% in 2011 before reaching 12% in 2012.
Jamie Macnab, a director of Savills Scotland, said: "Last year's price falls have meant that affordability within the Scottish housing market is rapidly being restored.
"We anticipate the worst of the price falls will be over by the end of spring 2009, so the point at which property will no longer decrease in value is approaching. Further average falls in 2009 are likely to result in the market overcorrecting, setting the platform for a bounce back in 2011 once economic growth is restored and the credit crisis has eased."
Mark Hordern, marketing manager at the Glasgow Solicitors' Property Centre, which covers the west central belt, said contrary to expectations, house price falls had slowed towards the end of 2008. "So it may be that the bottom of the market is not as far off as we once thought," he said.
"Prices should stabilise by the end of the year and then, if confidence returns, prices can take off pretty rapidly. As there will still be a shortfall in housing in Scotland, rising demand will push prices even higher.
"It might take two to three years overall, and I don't think we will ever get back to rises of more than 20%, but double digits are possible."
Lucian Cook, Savills' head of residential research, who compiled the forecasts, said: "Scotland is going to become very affordable. As a nation, Scots borrowed less than owners in England so houses remained cheaper. This has insulated Scotland from the downturn and means it can bounce back quicker. We are not at the bottom yet, but it should bottom out in the summer."
One effect of the credit crunch and the mortgage squeeze has been a 50% drop in the number of housing transactions in Scotland over the past year, partly because buyers have been unable to get home loans. Sellers have exceeded buyers, driving prices down.
But property experts claim many buyers are now waiting for the market to fall further before getting back on to the housing ladder. "These are cash-rich buyers or buyers with a lot of equity," Cook said. "Many people have sold and rented properties and have been happy to hold back while the market falls so they can pick up bargains.
"We think the number of cash purchases will rise dramatically later this year and as buyers come back in, prices will slowly start to rise again. This will be seen first in 2010 as mortgage finance increases. Prices will rise again in 2011 and be back to double digits in 2012. As house-building has virtually come to halt in Scotland because of the credit crunch, there will be still be a shortage of housing."
Neil Harrison, marketing manager at Edinburgh Solicitors' Property Centre, agreed that once mortgage restrictions are eased, Scotland's housing shortage could play a big role in price rises. "It was estimated that Scotland needed an extra 17,000 houses a year to meet rising demand. As new house-building has virtually stopped, this has bound to have an effect. Once the financial situation eases, you will see growth in prices."