Wednesday, December 08, 2004

No storm clouds for housing market - (UK)

The forecast for the housing market next year is one of "bright intervals and scattered showers" rather than "storm clouds", acciording to a prominent television academic.

House price indexes, mortgage repossession figures and industry reports reveal that the market is weakening, but all-out collapse is still unlikely, according to Martin Upton, an economist at the Open University Business School.

Mr Upton points out that at 4.6 per cent, unemployment remains low - half the level it was between 1990 and 1992, which was the last period of significant house price deflation in recent history.

Meanwhile, real incomes are continuing to rise despite a slowdown in economic activity, supporting the capacity of families to meet mortgage payments.

Despite the hikes in UK interest rates, mortgages remain affordable, while mortgage arrears - always a good indicator of the potential for distressed selling of properties - remain low.

The recent evidence of a slowdown, not only in house price inflation but in the economy overall, suggests that interest rates may have peaked.

The rate of house construction currently falls short of the demand arising from demographic change - including the growth in the divorce rate and the related break-up of households.

"An end to rampant house price inflation is not a precursor to a collapse in house prices, because this would fly in the face of current economic realities," Mr Upton said.

"2005 will see falls in prices in some months and rises in others - with the latter concentrated in the second half of the year. Over the year as a whole, prices will remain largely unchanged."


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