Wimpey (George) - The UKs Leading Housebuilder

LONDON (AFX) - One of the leading pessimists on the UK's housing market has conceded that its prediction of an overall 20 pct collapse in prices is not going to materialise and is now forecasting a 5 pct decline over the next two years.

Though Capital Economics continues to think that the UK's housing market is "fundamentally overvalued", it has adjusted its view of the likely scale and timing of the adjustment, given lower interest rates, higher-than-anticipated employment levels and a loosening in mortgage lending criteria.

"None of this is to suggest that the danger of a sharp fall in house prices has evaporated altogether," said Ed Stansfield, Capital Economics' property economist.

"As things stand, there would appear to be a growing chance that the adjustment to lower valuations will come about largely via a period of broad nominal price stagnation, allowing both real house prices and the house price to earnings ratio to decline gradually over a prolonged period," he added.

The group's new forecasts come in the wake of a raft of solid housing market news, most recently from the Royal Institution of Chartered Surveyors. In its monthly survey yesterday, RICS said house prices rose for the first time in 15 months during November with London leading the charge higher.