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Value of Houses Expected to Stand Firm in 2006

21.04.2006 The trend for house price inflation cooling off continues. According to Nationwide building society, which produces an index of house prices, the average house price rose by just 3 per cent in 2005. This translated into an average daily increase of £13 per day, or £4,500 over the year. This is more than four times lower than inflation in the previous year, when prices rose by 12.7 per cent. In 2002 house inflation reached a staggering 25 per cent; the highest it had been in 14 years. Since then however, inflation has gone down, and this led some property forecasters to predict a crash in the housing market.

Forecasts of a crash fail to materialise
The consultancy group, Capital Economics, predicted in 2002, that between 2004 and 2006 there would be a 20 per cent drop in prices. This dramatic change never materialised, and although the company stood by their forecast for three years, in the last week of 2005 they commented ‘There would appear to be a growing chance that the adjustment to lower valuation will come about largely via a period of broad nominal price stagnation’.
Mainstream opinion has been that runaway house price inflation will gradually slow to zero, or close to it, and will stay that way until earnings have caught up with prices. The Royal Institute of Chartered Surveyors estimates that prices at the end of 2005 were 7.8 times yearly earnings. But for the first time in 10 years, last years’ house price inflation was lower than average growth in earnings. Nationwide and Halifax predict house inflation won’t exceed 3 per cent in 2006 and independent economists believe earnings will grow between 4 and 4.5 per cent this year.

Predicting changes in the housing market difficult
According to the Governor of the Bank of England, Mervyn King, predicting changes in the housing market is very difficult. ‘You’d have to be mad or either a publicity seeker to predict what is going to happen in the house prices’.
There are mixed opinions about how the housing market will look in the coming years. Economists at ABN Amro predict a 5 per cent decrease in the price of houses in 2006. However Pete Spencer of the Ernst and Young Item Club forecasting group commented ‘What you need to collapse an overvalued market is a big shock like unemployment or double digit interest rate rises.’ The E&Y Item Club’s forecast is a 3 per cent increase in prices during 2006.
Britain’s lenders, Halifax and Nationwide predict house price inflation of between zero and 3 per cent.
Although the market has gone against expectations for some time now, buyers or those thinking of selling their properties shouldn’t take for granted that the days of runaway prices are completely over. Over time the housing market has proven to be an inherently volatile market.


		News » Home Insurance Value of Houses Expected to Stand Firm in 2006 21.04.2006 The trend for house price inflation cooling off continues. According to Nationwide building society, which produces an index of house prices, the average house price rose by just 3 per cent in 2005. This translated into an average daily increase of £13 per day, or £4,500 over the year. This is more than four times lower than inflation in the previous year, when prices rose by 12.7 per cent. In 2002 house inflation reached a staggering 25 per cent; the highest it had been in 14 years. Since then however, inflation has gone down, and this led some property forecasters to predict a crash in the housing market. Forecasts of a crash fail to materialise The consultancy group, Capital Economics, predicted in 2002, that between 2004 and 2006 there would be a 20 per cent drop in prices. This dramatic change never materialised, and although the company stood by their forecast for three years, in the last week of 2005 they commented ‘There would appear to be a growing chance that the adjustment to lower valuation will come about largely via a period of broad nominal price stagnation’. Mainstream opinion has been that runaway house price inflation will gradually slow to zero, or close to it, and will stay that way until earnings have caught up with prices. The Royal Institute of Chartered Surveyors estimates that prices at the end of 2005 were 7.8 times yearly earnings. But for the first time in 10 years, last years’ house price inflation was lower than average growth in earnings. Nationwide and Halifax predict house inflation won’t exceed 3 per cent in 2006 and independent economists believe earnings will grow between 4 and 4.5 per cent this year. Predicting changes in the housing market difficult According to the Governor of the Bank of England, Mervyn King, predicting changes in the housing market is very difficult. ‘You’d have to be mad or either a publicity seeker to predict what is going to happen in the house prices’. There are mixed opinions about how the housing market will look in the coming years. Economists at ABN Amro predict a 5 per cent decrease in the price of houses in 2006. However Pete Spencer of the Ernst and Young Item Club forecasting group commented ‘What you need to collapse an overvalued market is a big shock like unemployment or double digit interest rate rises.’ The E&Y Item Club’s forecast is a 3 per cent increase in prices during 2006. Britain’s lenders, Halifax and Nationwide predict house price inflation of between zero and 3 per cent. Although the market has gone against expectations for some time now, buyers or those thinking of selling their properties shouldn’t take for granted that the days of runaway prices are completely over. Over time the housing market has proven to be an inherently volatile market.
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