Clash over forecast of price falls
Housing market: rates warning as 20-year prediction is dismissed
Although most accepted that there will be no housing recovery this year or in 1996, they claimed that economic indicators point to a gentle upturn from 1997 onwards.
At the bullish end of predictions over the next three years was Rob Thomas, an economist at the Swiss banking group UBS. He foresaw a 10 per cent rise in house prices in 1997, following a 6 per cent rise next year.
His views differed widely from those of Douglas Wood, NatWest professor of banking and finance at MBS, who was due to tell last night's BBC Panorama programme: "If inflation stays low . . . the best we are going to see is that house prices stay the same in pound note terms. At the end of 20 years, I think that house prices will probably be of the order of 20 to 30 per cent lower than they currently are."
Mr Wood argued that increasing long-term job insecurity meant fewer people would be prepared to buy homes in future.
The Council of Mortgage Lenders said: "Anyone who heads 20 years out has got a better crystal ball than we have. Our argument is that there is a fixed supply in housing, plus real incomes are going up. People are likely to spend more on housing."
David Miles, senior UK economist at Merrill Lynch, said: "In the short term the market will not do well. In the longer-term, our projections are for a very sharp rise, due largely to demand factors. Once negative equity has disappeared, and it will not take much for that to happen, rises will be much sharper."
Ciaran Barr, UK economist at Morgan Grenfell, said: "We have cut our forecast for this year to 0.5 per cent and that is probably too optimistic.
"All the problems of negative equity and cuts in mortgage interest relief are contributing to lower than expected prices. Further increases in mortgage interest rates are still likely." However, he said increases in the number of UK households, due to immigration, greater life expectancy and the rise in single parent families, would stimulate housing demand in the next century.
Ian Sheperdson, UK economist at HSBC, was less confident. He pointed out that fall-off in demand began in December, before the effect of mortgage rate rises was felt by borrowers. Mr Sheperdson also argued that for house affordability to be restored to the same levels as 1984 several more years of weak prices were needed.
"So many analysts live in enormous houses in West London and think the rest of the country matches what is happening there," he said. "Any prospect of price rises will have to wait until the end of 1996, when taxes should be cut and interest rates have stopped rising."
A Gallup survey of consumer confidence yesterday showed optimists still outweigh pessimists. David Hillier, an economist at NatWest Markets, said: "The balance of respondents thinking now is a good time to make a major purchase has fallen, [reflecting] higher taxes and mortgage payments working their way through."
Comment, page 25
House prices (percentage gains or falls)
1995 1996 1997 1998 1999 2000
HSBC (Midland Montagu) -2 0 0-2 0-2 0-2 0-2
Halifax 1-2 2 3 4
Merrill Lynch 2-3 2-3 2-3 8-9 10
Mortgage Lenders' Housing Market Report 3.2
Morgan Grenfell 0.5 2.5 4 5
UBS 3 6 10
Nationwide 0 3
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