Limited household earning power will stall the mainstream market, but pent up demand will drive the top end, say experts

As the property market enters the busy season, forecasts on future performance start flocking in. The Centre for Economics and Business Research, an independent consultancy, has just produced a bear-ish report for 2011. The centre’s analysts believe that ‘anaemic growth’ in disposable income and rising unemployment levels will put a stop to last year’s ‘fragile recovery.’ In this climate, households will retrench and focus on rebuilding their savings.

‘We expect to see household earning power suffer over the next year or so, due to higher inflation and weaker employment prospects as the economic recovery remains fragile,’ says CEBR economist Shehan Mohamed.

As a result, demand for mortgages will drop dramatically (by about 50% according to Mr Mohamed) and housing prices will dip, particularly in the areas most affected by the spending cuts in the public sector, ending 1.7% lower than last year. The silver lining is that houses will be more affordable than at any other time in the last eight years, thanks to the combined effect of weak prices and low interest rates.

CEBR analysts believe that the property market will pick up in 2012 as consumer confidence bounces back and banks relax their tight lending criteria. Mike Bidwell of Fine & Country estate agents shares this view for the mainstream market, but he-and many other agents dealing with prime property-believes that the outlook for the luxury segment is much more positive.

‘The prime market will be steady in the first half of the year before showing an improvement in quarter three and then maintaining that momentum into 2012,’ he says. ‘I anticipate that this recovery will take place quicker in the south of England rather than the north even though there are hot spots and cold spots in both halves of the country.’

Mr Bidwell cites pent-up demand among equity rich buyers as the main reason behind his forecast. ‘I believe that some homeowners have placed their moving plans on hold for long enough or are seeing enough light at the end of the tunnel to make their minds up and get on with it,’ he says. ‘After all, even if prices are down in their area from the peak, then so long as they buy and sell in the same market conditions, it really makes no great difference.’

A poll on www.countrylife.co.uk bears out this analysis, with 55% of participants stating that they are sick of waiting to move house and are planning to buy and sell in 2011.