The housing market slump is close to ending, with prices set to bottom out later this year and begin rising again by 2011, the City is predicting.

A growing majority of economists are calling the end of a housing crash that has so far wiped about a fifth, or more than £40,000 on average, off home values.

A poll of economists by Reuters found a consensus that house prices will drop by 8 per cent this year — having so far fallen by about 3 per cent since January and by 16 per cent during the past year.

But the City’s experts are betting that average prices will then stay broadly flat next year and start rising again from 2011, climbing by 2 per cent.

The predictions point to a total plunge in the cost of a typical home, since prices peaked in autumn 2007, of about a quarter, cutting the average house price by about £50,000 from a high of just under £200,000. That is less severe than the drop of a third that analysts had previously forecast.

As recently as March, economists were predicting an average 14 per cent fall in house prices this year and a further 4 per cent drop next year. Now 23 out of 33 economists polled said that house prices should stabilise within a year, with 11 predicting a trough within six months.

“We will get a few more month-on-month negatives but it is pretty flat from here,” Alan Clarke, of BNP Paribas, the leading City bank, predicted.

A key constraint on the market remains banks’ unwillingness to lend to many buyers at economical rates.

Banks fear big losses on past, lax lending and are battling to shore up strained finances. A report yesterday from Calnea, a consultancy, warned that lenders could face cumulative ten-year losses on secured loans of up to £15 billion, on extreme scenarios — and between £7 billion and £11 billion on more moderate ones. Using data from the Financial Services Authority, Calnea also estimated that as many as 2.9 million homeowners could now be in negative equity, with their homes worth less than their outstanding mortgages if “second charge” and buy-to-let loans were included.

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