UK house prices have declined since the end of 2009. Despite a slight uptick in Q4, RGE believes that house prices will follow a downward trend for most of 2011.
Figure 1: House Price Indexes and Price-to-Earnings Ratio
Source: Lloyds Banking Group, Nationwide
We believe that the job losses associated with the imminent fiscal consolidation and continued constraints on credit will drag down house prices. Furthermore, the house price-to-earnings ratio is still above its long-term average. According to Halifax, the ratio was at 4.5% in January, down from its peak of 4.7% in April, but[...]