Renthusiast

House prices are forecast to rise an average 6.0 per cent this year, after registering 5.4 per cent growth in 2005. This is cebr's latest forecast for the UK housing market, published in Quarterly Housing Forecasts Spring 2006. With interest rates expectations anchored at 4.5 per cent and with a booming financial sector, housing prices are expected to grow relatively robustly this year - and by more than most currently expect.
In the first quarter of 2006, house prices added to the gains made at the end of 2005, with the demand for houses continuing to recover following the slowdown after the boom of the early 2000s. The year-on-year growth rate, based on the Halifax house price index, rose to 6.2 per cent in the first quarter of this year. We expect this renewed buoyancy to continue into the second quarter, helped by the takings from an upbeat financial market, international monetary flows and an upswing in UK economic growth.
House market activity is however expected to taper off gently in the last two quarters of 2006, as unemployment rises and higher energy bills start to bite. Yet despite slowing down, with mortgages remaining affordable, we expect average house price growth for the whole of 2006 to be marginally above the level of growth recorded in 2005.
Analysing regional data, it is clear that different regions are at different stages in the house market cycle. Whilst northern regions are still slowing down following the housing boom of the early 2000s, house price inflation in southern regions is rising backed by higher wages and bonuses in areas sectors such as finance and business services.
Looking out to 2007, although UK household finances are likely to remain tight, the flow of monetary liquidity from Asia and oil producing countries into the UK - and the country's inherent housing supply difficulties - should help to keep house price inflation positive, though below trend at 3.0 per cent. A correction in the financial markets, a slowing world economy and US housing market should also ease pressure on house prices in 2007, culminating in 2008.
"We see the housing market turning in 2009 after two years of sluggish growth, helped by an economic recovery and a failure by government to ease planning restrictions. Nevertheless inflation is unlikely to reach trend growth of seven per cent because houses remain slightly over valued following the housing boom of the early 2000s. We expect that the adjustment to the market\'s equilibrium will continue gradually, with annual growth falling short of trend growth for the rest of this decade.
We see the housing market turning in 2009 after two years of sluggish growth, helped by an economic recovery and a failure by government to ease planning restrictions. Nevertheless inflation is unlikely to reach trend growth of seven per cent because houses remain slightly over valued following the housing boom of the early 2000s. We expect that the adjustment to the market's equilibrium will continue gradually, with annual growth falling short of trend growth for the rest of this decade.

Jonathan Said
centre for economics and business research ltd
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