Savills Rejects Crash Predictions

The value of the average house is set to rise by just 2% next year, according to research by FPD Savills.

The figures come as a result of affordability pressures, and may be slightly cautious if interest rates were to decrease in 2005, the agent has said.

Looking beyond next year, their research department expects average prices to keep rising, albeit in single figures, as household incomes and house prices re-align over the next 2-3 years.

Head of Residential Research at Savills Mr Richard Donnell noted that the depressing mortgage approvals data from the Halifax and Nationwide are simply the results of would-be-buyers sitting on their hands and waiting for a clear indication on interest rates. A similar pattern occurred in 2000 when rates rose from 5% to 6% over a 6 moth period, he pointed out.

Savills therefore expects a limited bounce back in market activity in the New Year as buyers become more relaxed about the outlook for interest rates which appear to be at, or close to, their peak.

However, there is a small chance they fall quickly in which case: ?If interest rates move down faster than currently expected then the likelihood is that values will rise by closer to 5% than the 2% we are currently forecasting,? said Mr Donnell.

On weekend predictions from Mr Christopher Smallwood at Barclay?s Bank that prices would fall 20% over the next three years, and 8% next year, Mr Donnelll commented: ?The housing market is re-pricing but this is in terms of asking prices rather than underlying value and this is the key thing.

?Underlying value is not falling; this is my perception. You cannot expect the housing market to behave like the equity market, and lots of economists in the city are making this mistake.?