Thursday, March 11 2004

If house prices continue to rise at current levels – around 17% – for the next two years they will eventually collapse, says a new report.

The Centre for Economics and Business Research (CEBR) whose Housing Futures annual report was published today, predicts that a rise this steep in house price inflation would definitely result in a crash.

Douglas McWilliams from CEBR said it was unlikely that this outcome would transpire, but that ‘Whether house prices collapse in the future will depend on the extent to which prices overshoot.’

The more likely model produced by the CEBR predicts a slower rise, averaging out at around 4.5% year on year.

‘House price inflation has not fallen as fast as we expected a year ago, said Mr McWilliams. ‘We think a soft landing is more likely than not.’

But if prices do fall back, the report also warns against assuming that the right strategy is to sell up. By 2005, when the average property in London is likely to sell for £250,000 and hence attract Stamp Duty of 3%, a typical London house move is going to be costly. It may be better, therefore, to wait for prices to pick up, it says.

Housing Today also predicts a rise in UK housebuilding in response to changing patterns of living, with less extended families and more smaller family units. This, says the report, will have the effect of redressing the typical imbalance of supply and demand which characterised 2003.

To order a copy of the report, which can be purchased in email format for £150 or hard copy with an additional multi media package for £250, telephone the CEBR on +44 (0)20 7324 2864, or go to their website.