RICS has predicted that house prices will finish 2011 2% lower than at the end of 2010. In its Housing Market Forecast published today, RICS suggests transactions are likely to remain flat, while repossessions will decline marginally.

Although house prices are likely to continue to slip over the coming months, falling supply should provide a platform for the market to stabilise at some stage in the first half of 2012, RICS says. It adds that by the latter part of the year, prices could be edging up again, with the result that by the end of 2011, they may not be very different from where they currently stand.

A key risk to this view is that fall out from public spending cuts will have a bigger impact on the jobless total than envisaged, which will depress buyer interest by more than anticipated. However, even in these circumstances, the lack of supply will prevent the decline in prices amounting to more than 5%.

Despite the narrowing gap between demand and supply, it is likely the number of completed sales will remain flat. RICS estimates the average volume of transactions will amount to little more than 900,000 over the course of 2011. Key indicators suggest the availability of mortgage finance will not show any significant increase, keeping transactions at roughly the same level as 2010.

Meanwhile, repossessions are likely to fall back marginally. In 2010, around 36,000 were taken into possession by lenders, but claims issued in the third quarter (the first stage of the possession process) were 26% lower than in the same period of 2009. RICS estimates the number of properties taken into possession will slip in 2011 to 33,000.

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.