Housing market static until 2000

THERE will be nothing to stimulate the housing market for the rest of the decade, the Bank of England will warn this week. Declines in house prices will occur more frequently in future, it will predict.

In a low-inflation world, house prices will fall more often, according to Bank economist Joanne Cutler writing in the Quarterly Bulletin, the Bank's official journal, to be published on Wednesday. House prices fluctuate more than other prices because the supply of housing is relatively fixed. ''In an environment of overall price stability, this is likely to mean that house prices will fall in some years,'' Ms Cutler writes.

In addition there will be less interest in buying property as a hedge against inflation. Other factors such as demographic change will mean the absence of any other stimulus to demand in the next few years.

The article adds: ''Developments in the housing market, including arrears, repossessions and negative equity, have increased the perceived risks of borrowing for house purchase.''

Last week brought evidence of the market's weakness with figures showing the first rise in repossessions in four years and an increase in short- term arrears of three-six months, due to higher interest rates and the tailing off of the decline in unemployment.

Mortgage lenders warned that cuts in income support for unemployed home owners will undermine the market further. The Treasury is studying proposed measures to stimulate the market, but the industry does not hold out much hope of any action in November's Budget.

House prices quadrupled in real terms in the 50 years to 1994, and doubled in the 1980s.

Comments