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House prices 'to drop 2% in 2011'

House prices look set to end next year 2% lower than they start it, but a shortage of homes on the market should prevent bigger price slides.

Property values are likely to continue falling during the coming months but a lack of supply should help to stabilise the market at some point during the first half of next year, the Royal Institution of Chartered Surveyors (Rics) said.

Prices could then begin edging up again during the latter part of the year, to leave property values close to where they started the year by the end of 2011.

The group said a key risk to its forecast was that public spending cuts would increase unemployment more than it expected, and this could depress interest from potential buyers.

But it said even if this happened, a shortage of properties coming on to the market was likely to prevent prices falling by more than 5%.

Simon Rubinsohn, Rics chief economist, said: "The lack of supply in the market is likely to prevent significant house price declines in 2011.

"The narrowing gap between supply and demand will see the gentle downward trend in prices currently taking place at least partly reversed as the year wears on."

The group expects the number of homes changing hands to remain broadly flat during the year at around 900,000, well down on the peak of nearly 1.7 million sales in 2007, as the ongoing lack of mortgage finance keeps transaction levels down.

Mr Rubinsohn said: "Transactions levels will remain flat as mortgage lending remains subdued for another year with many first-time buyers struggling to meet their aspirations of home ownership."

But on a brighter note, the group expects repossessions to fall back slightly. Around 33,000 people will lose their homes during 2011, down from around 36,000 this year, as a combination of low interest rates, Government support schemes and lender forbearance helps people to stay in their properties.

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