Clash over forecast of price falls

Housing market: rates warning as 20-year prediction is dismissed

Economists and mortgage lenders yesterday clashed with predictions by a Manchester Business School professor that house prices will fall in real terms by up to 30 per cent over the next 20 years.

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

BSA/CML 2

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

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Guru Careers: Tax Manager / Accountant

£35 - £50k DOE: Guru Careers: A Tax Manager / Accountant (ACA / CA / CTA) is n...

Ashdown Group: Contracts Executive - City of London

£35000 - £37000 per annum + benefits: Ashdown Group: Contracts Executive - Cit...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £45K: SThree: SThree Group have been well esta...

Recruitment Genius: Call Centre Debt Collector - Multiple Roles

£21000 per annum: Recruitment Genius: This is an exciting opportunity to join ...

Day In a Page

Giants Club: After wholesale butchery of Idi Amin's regime, Uganda’s giants flourish once again

Uganda's giants are flourishing once again

After the wholesale butchery of Idi Amin's regime, elephant populations are finally recovering
The London: After 350 years, the riddle of Britain's exploding fleet is finally solved

After 350 years, the riddle of Britain's exploding fleet is finally solved

Archaeologists will recover a crucial item from the wreck of the London which could help shed more light on what happened in the vessel's final seconds
Airbus has patented a jet that could fly from London to New York in one hour

Airbus has patented a jet that could fly from London to New York in one hour

The invention involves turbojets and ramjets - a type of jet engine - and a rocket motor
10 best sun creams for kids

10 best sun creams for kids

Protect delicate and sensitive skin with products specially formulated for little ones
Tate Sensorium: New exhibition at Tate Britain invites art lovers to taste, smell and hear art

Tate Sensorium

New exhibition at Tate Britain invites art lovers to taste, smell and hear art
Ashes 2015: Nice guy Steven Finn is making up for lost time – and quickly

Nice guy Finn is making up for lost time – and quickly

He was man-of-the-match in the third Test following his recall to the England side
Ashes 2015: Remember Ashton Agar? The No 11 that nearly toppled England

Remember Ashton Agar?

The No 11 that nearly toppled England
Turkey-Kurdish conflict: Obama's deal with Ankara is a betrayal of Syrian Kurds and may not even weaken Isis

US betrayal of old ally brings limited reward

Since the accord, the Turks have only waged war on Kurds while no US bomber has used Incirlik airbase, says Patrick Cockburn
VIPs gather for opening of second Suez Canal - but doubts linger over security

'A gift from Egypt to the rest of the world'

VIPs gather for opening of second Suez Canal - but is it really needed?
Jeremy Corbyn dresses abysmally. That's a great thing because it's genuine

Jeremy Corbyn dresses abysmally. That's a great thing because it's genuine

Fashion editor, Alexander Fury, applauds a man who clearly has more important things on his mind
The male menopause and intimations of mortality

Aches, pains and an inkling of mortality

So the male menopause is real, they say, but what would the Victorians, 'old' at 30, think of that, asks DJ Taylor
Man Booker Prize 2015: Anna Smaill - How can I possibly be on the list with these writers I have idolised?

'How can I possibly be on the list with these writers I have idolised?'

Man Booker Prize nominee Anna Smaill on the rise of Kiwi lit
Bettany Hughes interview: The historian on how Socrates would have solved Greece's problems

Bettany Hughes interview

The historian on how Socrates would have solved Greece's problems
Art of the state: Pyongyang propaganda posters to be exhibited in China

Art of the state

Pyongyang propaganda posters to be exhibited in China
Mildreds and Vanilla Black have given vegetarian food a makeover in new cookbooks

Vegetarian food gets a makeover

Long-time vegetarian Holly Williams tries to recreate some of the inventive recipes in Mildreds and Vanilla Black's new cookbooks