The past quarter brought no evidence of a stronger economic recovery, an easing in credit conditions or any resolution to the euro-zone crisis. Therefore, with households cautious, housing market activity is unlikely to improve. Indeed, signs of a renewed tightening in credit conditions in recent months suggest that the pace of house price falls could soon accelerate. Our forecast is for house prices to fall by 5% in both 2012 and 2013 and by 3% in 2014. There is a risk that a London-centric shock, such as a disorderly break-up of the euro-zone, could trigger sharper house price falls.
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