Are house prices set to crash?

Tony Dye, the man who forewarned of the stock market collapse, has predicted that house prices will fall by 30 per cent over the next five years. Susie Mesure asks the experts whether they agree
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The Independent Online

Name: Patrick Minford

Name: Patrick Minford

Occupation : Professor of applied economics,

Cardiff Business School

Housing market future: House prices will rise by double digits this year before "moving towards a slowly rising plateau" of single-digit increases in real terms next year. He rules out a crash because the economy has restructured itself away from manufacturing towards traded services and hi-tech industry, which are enjoying healthy price rises. As household incomes rise, demand for housing will also increase. Although Welsh house prices shot up by more than 30 per cent last year, Wales is still "full of bargains". Welsh house price strength is an "arbitrage process led by the UK economy" which caught commentators on the hop.

Name: Philip Williamson

Occupation : Chief executive, Nationwide

Housing market future:

Britain's biggest building society is so confident that there will not be a housing crash that it almost doubled its forecast for house price growth to 15 per cent last month. It believes consumers will eventually wake up to how much debt they have - but over the next two to three years, rather than the next 12 months. When they do, Nationwide is forecasting a period of house price stagnation, not a crash, unless there is some major external shock that causes unemployment to rocket. That said, Nationwide believes the market is "highly valued" and warns that any slowdown could happen quite quickly once people lose confidence.

Name: Christopher Stainforth

Occupation : chief executive, Durlacher

Housing market future: The mini-investment bank has warned that Britons' record debt levels, combined with rising interest rates and declining rents will trigger a 30 per cent crash. Its worst-case scenario is that house prices will plunge 45 per cent, the trigger being supply-driven: homeowners trying to sell at the top of the market. It has said the housing market has the "classic features" of a speculative bubble, pointing - admittedly tongue in cheek - to the fact that the number of property-related TV programmes has not peaked. One positive is that house price deflation should be "shorter if sharper" than in the late 1980s, with real prices falling for just two years.

Name: Mervyn King

Occupation : Governor, Bank of England

Housing market future: As the ultimate arbiter of how much people must pay to service their debt, his view on interest rates matters more than most. The Bank has long expected house price inflation to moderate gently to zero and is perpetually surprised at the market's strength. Its latest inflation report hinted that further interest rate rises were on the cards, noting that house prices have continued to rise "at an unsustainably rapid rate". Its decision to hold the base rate at 4 per cent last week suggests it has not changed its view in March that "households may not have taken the prospect of further increases in interest rates fully into account".

Name: Tony Dye

Occupation : runs Dye Asset Management

Housing market future: The City's "Dr Doom" (he predicted the end of the dot.com bubble) believes London house prices will collapse. He warns that prices in the capital could plunge by 30 per cent in real terms over the next five years and believes that fall could be mirrored nationally. He blames a "herd" instinct for fuelling the bubble as people seek to cash in on the boom without regard for rational valuations. Mr Dye believes the bubble will inevitably burst because there is no such thing as a "soft landing" for markets that have risen so sharply. He thinks the Bank of England's softly-softly approach to raising rates is too little, too late.

Name: Roger Bootle

Occupation : managing director, Capital Economics

Housing market future: Mr Bootle has long warned that house prices are set to crash by 20 per cent in real terms over three years. Despite failing to forecast the onset of the slowdown - he said prices would start to fall last year - he is unrepentant and still believes the market is overblown. He cites the record low number of mortgage approvals for first-time buyers and plummeting yields for buy-to-let investors as the main reasons for sticking to his guns. He also believes that by the end of next year household debt-servicing costs could nudge the peak levels seen in the early 1990s, given that debt is rising more quickly than incomes.

Name: Professor Tim Congdon

Occupation : director, Lombard Street Research

Housing market future: A house price correction is "inevitable but not imminent". Stewart Robertson, his consultancy's UK economist, predicts the housing bubble has momentum for the rest of this year, buoyed by "extremely" strong levels of mortgage approvals. Blaming the Bank of England's reluctance to hike interest rates, he believes annual house price inflation could hit 20 per cent by the end of 2004. Such rises are "unsustainable". He saw last week's decision to hold rates at 4 per cent as a missed opportunity. When rate rises come, they could cause problems in 2005 and 2006, he warned.

Name: Aubrey Adams

Occupation : chief executive, FPD Savills

Housing market future: Among the housing bears at the start of the year, with its predictions of a meagre 4 per cent increase, the upmarket estate agency is planning to lift its forecasts to a double-digit rise for 2004. It justifies its bullishness by arguing that almost half of the UK housing market was undervalued at the end of last year. Its head of residential research, Richard Donnell, reckons "excess affordability" is still working its way into the market and will support another 18 months of house prices rises. This is particularly true of the North-East and Wales, which will continue to outstrip the rest of the country because more houses there are undervalued.

Name: Louis Armstrong

Occupation : Chief executive, RICS

Housing market future: Has ruled out a housing crash because of the underlying strength of the UK economy. Says the strong economy had confounded forecasters, mitigating any effect of the Bank's two interest rate rises in the past six months. Although RICS started the year forecasting that house prices would rise by 6 per cent, it expects to revise its expectations up this summer. Annual house price inflation will continue to race ahead in Wales and the North because houses are still "relatively cheap" compared with the South-east. But there will be "some slowdown" from the 30 per cent-plus increases seen in the regions last year.

Name: Miles Shipside

Occupation : Commercial director, Rightmove

Housing market future: Despite house prices rising at a faster rate nationally than last year, Mr Shipside plays down the risk of a housing crash because mortgages are much more affordable than they were in the 1980s and 1990s. He says the affordability of borrowing at mortgage rates of 5 per cent - historically low - is more important than the relationship between house prices and incomes. He adds: "With the supply issue starting to be addressed, interest rates universally expected to stay low and the customary cooldown over the holiday period, there's every reason to believe the housing market will return to a more stable condition as the year progresses."

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