Debate predicts subdued house price growth

Amanda Jarvis

March 29, 2006

Martin Ellis, chief economist at HBOS Plc, does not see house prices rising in real terms for the next 10 to 20 years. Speaking in response to a question at the first Great Housing Debate, held in London, this long-term forecast is in line with his official figure of a modest 3 per cent growth for 2006.

Agreeing with the current “stagnation” of the housing market were fellow panellists Jim Cunningham, senior economist of the Council of Mortgage Lenders and Richard Donnell, director of research at Hometrack. However, this outlook is dependent on the ongoing stability of low interest rates and high employment.

Martin Ellis went on to warn that affordability has been stretched to the limit: “Pressure on household finances from increases in council tax and utility bill rises, possible interest rate movements and any rises in unemployment will prevent a sharp pick up in prices.”

Hometrack’s Richard Donnell added that households have run out of buying power: “Affordability pressures will eliminate aspirational buyers who currently make up almost 70 per cent of the market. The housing market is fully valued and now has a greater sensitivity to small shocks.” He also pointed to low growth in line with inflation over the next two or three years.

Jim Cunningham stated that the upward trend in housing market activity evident over the past year might now be drawing to an end: “Affordability remains intense for first time buyers and we expect the attractiveness of moving to be adversely affected by high transaction costs, notably stamp duty, and the prospect of only modest house price growth.”

He also underlined that while arrears and possessions were expected to rise, they would remain at historically low levels. Cunningham added: “But it may mean that a larger proportion of borrowers could be more vulnerable to falling incomes or rising interest rates than was the case a couple of years ago.”

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