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Housing market 'to ease in 2005'
UK house prices will rise next year, but not at the frenetic pace seen in
recent years, the Nationwide has said.
Nationwide said it expected prices to grow by just 2% in 2005 as rate rises and more realistic expectations about the market begin to bite. The forecast came as the building society revealed house prices rose 1% in November - following the 0.4% dip experienced in October.
The average house price rose to £153,439 from October's £152,159.
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The trend in house price growth continues to slow and, importantly, so far the slowdown has been an orderly one Alex Bannister, Nationwide |
However, despite the increase, the annual rate of house price growth dipped to
15% from October's figure of 15.3% as market activity slowed to its lowest level
in five years, Nationwide said. The dip prompted the group to revise its forecast of house price inflation for 2004 down to 13-14% from 16%.
Slowdown ahead
It added that the trend in price growth was continuing to slow and forecast prices would rise by just 2% next year.
"The trend in house price growth continues to slow and, importantly, so far the slowdown has been an orderly one," Nationwide economist Alex Bannister said. "With the exception of Northern Ireland, no region has escaped the slowdown in price growth over recent months."
The group added that even if the Bank of England does raise rates again in the coming year, in line with its forecasts of a 5% peak, mounting competition in the mortgage market coupled with borrowers' increased appetite for re-mortgaging for cheaper deals would mitigate some of impact of higher rates on the property market.
On Monday, data from the Bank of England showed just 83,000 mortgages were approved in October - the lowest level since January 2000. Meanwhile, a trading update from Northern Rock appeared to back up Nationwide's predictions for the year ahead.
"We expect to see the number of 'home moving' transactions to continue to be subdued next year. This reflects the slowdown in the housing market," Northern Rock said.
Economic 'drag'
However, despite warning that the housing market will cool over the coming year, Nationwide added that there was little chance of a repeat of the property crash seen in the early 1990s.
"This contrasts with the early `90s when the severe economic downturn resulted in a sharp correction in the housing market." The group also said that while the market will fall in former "hot spots" across the UK such as the North and Yorkshire, the slower regional markets will move ahead.
Northern Ireland is expected to see the biggest leap in prices over the coming year with the North West seeing the biggest correction. However, speculation about the direction of the UK housing market remains rife - with experts split between a boom and crash stance while others expect a soft landing as prices gradually level off.
Easy landing or crash?
Halifax said the market appeared to be to be "moving into a slowdown following the period of strong growth".
The UK's biggest mortgage lender added that the market would be underpinned by rises in employment and household income, and shortages of housing stock. Halifax thinks interest rates have peaked. Barclays has predicted that prices will sink 20% over the coming three years after recent booming growth - with prices set to drop 8% alone in 2005.
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My gut instinct, given all the other indications, is really that the November numbers (from Nationwide) will ultimately prove to be a blip Ed Stansfield, Capital Economics |
Blip?
The slight rise in house prices identifed by Nationwide in November is likely to "prove to be a blip", said Capital Economics property analyst Ed Stansfield.
"Prices need to fall to reach a sustainable level. There's been a sharp deterioration in affordability - the house price to earnings ratio - in the last six months," he said. Mr Stansfield added that there had also been a marked shift in sentiment in recent months, with most ad hoc surveys showing that 50% of homeowners are expecting prices to fall in the next 12 months.
Capital Economics expects prices to be 6% to 7% lower by this time next year. "Once the market has turned we really expect it to ease further through 2005, 2006 and the first half of 2007," he added.
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