250: House prices in 2007? The only way is up
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Property experts seem to be in agreement, Graham Norwood reports
It is crystal ball time for the housing market. But if the majority of experts are right, property prices next year will only go in one direction - upwards, albeit gently.
Across the board: the entire market is set to rise, with London and the South-East leading the way
Predictions for the mainstream market open with the estate agent Cluttons and the consultancy Hometrack forecasting rises of three and four per cent respectively. At the top end, agent Knight Frank predicts six per cent and Savills suggests seven per cent at least. They all agree that Central London, South-East England and Scotland will rise more than average and all claim that the big hikes seen in Yorkshire and the North of England in recent years are over for now.
There is agreement, too, on the wider economic and demographic trends that serve to push up prices.
First, there are too few homes being built. Data from the Office for National Statistics shows that increased life expectancy, higher divorce rates and more solo-living are creating an extra 230,000 households every year. But only 170,000 new homes are built annually. In Central London, top-end flats and houses are especially rare, so 2007 may see rises of more than 10 per cent in this part of the market.
Second, Britain's enthusiasm for ownership remains strong, despite high prices. Only 11 per cent of households rent privately compared to 21 per cent in France and over 30 per cent in Germany.
Neil Chegwidden of Cluttons calls this "the ‘must get on the housing ladder' mentality" and says it helps ensure high demand even when affordability decreases.
Third, the arrival of Home Information Packs in June may push up prices a little. The compulsory packs, containing search details and environmental assessments of every home on sale, may reduce the number of properties coming to the market as vendors wait to see how HIPs bed in. "If demand remains at current levels, this could send prices to new heights," says Mark Anderson of estate agent Hamptons.
Even another predicted interest rate rise in the New Year may not derail the upward trend. Neil Chegwidden says rises used to deter buyers but the ability to borrow up to five times their salary, up to 125 per cent of a property's value and on interest-only payment plans means this is "far from certain" in the future.
There are some dissenting voices, however. David Miles, a market analyst for Morgan Stanley and a former Treasury adviser, predicts that buyers will soon begin to resist ever-increasing asking prices. "We're likely to have significant falls in house prices once those expectations come down," he says. Meanwhile accountancy firm PricewaterhouseCoopers predicts a one-in-three chance of house prices falling by 2010.
But such views are in the minority. Even the most pessimistic housing analyst, Capital Economics, which predicted price falls each year between 2000 and 2004, says the market will not go belly-up in the next 12 months.
In the end most experts call next year's market on the basis of the simplest market principle, saying that there is more demand than supply so prices will inevitably rise. But if they rise too much, affordability constraints will deter buyers - especially firsttimers - so demand will then dip, ensuring that the rises remain relatively modest.
Or as Yolande Barnes of estate agency Savills puts it: "There's no mechanism for house prices to slow while the economy is buoyant and when there's not enough property of the right type in the right places."
Source:
Telegraph.co.uk - Property