Mon, 19 Nov 07
House prices growth will stall in 2008, according to nationwide...
Economic tailwinds are turning into headwinds, and house price inflation is expected to drop from the current rate of 9.7% to 0% by this time next year. A slower economy, stretched affordability, tighter credit conditions and lower buy-to-let demand will all take a bite out of house price inflation
Interest rate cuts and tight supply will provide some support to price growth, but are unlikely to prevent a significant slowdown.
Inflation faces a significant drop
Commenting on the forecast Fionnuala Earley, Nationwide's chief economist, said: House prices recorded another strong year in 2007, underpinned by significant economic momentum, ongoing housing shortages and strong buy-to-let demand. We forecast house price growth of 5-8% in December last year, and with two months left to go it looks like the middle to upper end of this range will be achieved.
That being said, momentum is now fading, and a number of factors suggest that house price inflation will drop from its current rate of 9.7% to 0% by this time next year. The main reasons for this more subdued outlook lie on the demand side of the market, where a slowing economy, tighter credit conditions, stretched affordability for first-time buyers and lower house price expectations appear likely to reduce the level of activity.
The supply-side of the market will still be characterised by widespread housing shortages, in spite of government targets to increase house building. These shortages will provide some offsetting support to prices amid the weaker demand environment, particularly in the south of the
Stuart Law, Chief Executive of Assetz, commented: The Nationwide, like most building societies, tends to significantly underestimate house price inflation at the beginning of each year. Next year appears to be no different, with today’s prediction of 0%. In contrast, I would expect house prices to increase by 5% in 2008.
Buy-to-let demand is strong and with rents rising (confirmed by both Arla and RICS) buy-to-let investors look to make more profit than ever on rental income, particularly with interest rates expected to come down by as much as 0.75% over the next year.
Robert Bryant-Pearson, Chief Executive of Allied Surveyors, observed: A drop in house price inflation to 0% by this time next year seems a pessimistic forecast. However, we are likely to see significant falls in house price growth for particular house types, in particular locations over the coming year.
The likelihood is that city bonuses will not be as high as they have been in previous years, therefore many large country properties may see a fall in demand and therefore a decrease in value.
Poorer housing such as ex-local authority stock is a sector where we expect there to be a higher proportion of repossessions and therefore some significant decreases in value may be experienced here too.
However, I would expect to see family accommodation bucking the trend with reasonable growth in 2008, especially in locations close to good transport links and in sought after school catchment areas, where demand will remain high.
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