After a drop of 1.3% over 2011, the Centre for Business and Economics Research says that house prices will increase ‘gently’ between 2012 and 2015.
The rise in prices says the CEBR will be mainly due to an ongoing shortage of housing, an increase in the availability of mortgage finance and continued loose monetary policy.
It expects house prices to have risen by 14% by 2015, which is a downward revision of the 16% growth predicted in May this year. This will put the average house price at Â£200,700 compared to 2007’s peak of Â£191,200.
The rise in prices will also be fuelled, it says, by a rising population and falling average household size leading to a shortage of accommodation so pushing prices up as demand continues to exceed supply. Already home ownership has decreased from its 2000 high of 71% down to 68% and this is expected to decrease further as potential first time buyers opt to rent instead.
Instead of the required number of 225,000 new homes being built every year only 110,000 are expected to actually materialise says the CEBR.
Then there is the issue of interest rates, which the CEBR expects to remain below 2% until 2015 keeping mortgage rates down at about their current level, especially if there is more quantitative easing.
The CEBR is rightly not expecting a housing boom, what it is expecting is the combination of enough available finance coupled with sufficient demand against a backdrop of a relatively dwindling supply to keep house prices drifting upwards.
The one point I take issue with is their statement ‘House building is forecast to remain depressed for the next four years and consequently, with population growth and falling average household size there is likely to be an increasing shortage of accommodation.’
You can't have more people, less houses and smaller household sizes. For me this can only mean one thing, more people occupying less accommodation space. Hence, far from falling average household sizes, we will see children living at home longer, more houses converted into flats, more homes of multiple occupancy and possibly more people renting out rooms as the economic situation deteriorates.
All in all more people squashed into less space, unless the government grasps the bull by the horns, orders the building of more family housing and accepts the resulting drop in house prices …….. fat chance!