Homeowners prepared to sit out the housing market downturn could see their property increase in value by 25% over the next five years, new research suggests.
The National Housing Federation (NHF), which represents affordable housing associations, says that house price falls seen this year will continue into and throughout 2009 - after which point homeowners will see a reversal of fortunes and prices will start to rise.
Its report, entitled Home Truths and carried out by independent economists Oxford Economics, predicts that house prices will fall by an average of 2.1% next year, before increasing by 1.3% in 2010. In 2011, it predicts house price inflation of 5.2%, increasing to 9.2% in 2012 and 9.3% in 2010.
The logic behind the forecast is that the factors that resulted in such rapid house price inflation prior to the downturn at the end of 2007 remain in force - namely, demand for property continues to grow, while supply of new housing is falling. The NHF says at least 223,300 households are expected to form each year to 2026, fuelling demand for housing, yet just 75% of required new homes are actually built each year.
David Orr, chief executive of the NHF, says that the demand/supply ratio means that, once the economic outlook improves, house prices will start to increase.
“People are living longer, they’re delaying getting married and they’re more likely to get divorced – meaning we now have more households than ever,” he says.
In the short-term, however, the outlook for house prices remains bleak. Date provider Hometrack says prices fell on average by 1.2% over July and 4.4% over the past 12 months - effectively wiping out house price inflation seen since October 2006.
Richard Donnell, director of research at Hometrack, says: "With no immediate end in sight to the current uncertainty, activity levels are likely to remain suppressed with prices remaining under pressure into the autumn."
Other data, from the Land Registry, shows average house prices in England and Wales fell 1% in June. House prices in London fell by 2.5% in June - more than any other region in England and Wales, taking the average London house price to £345,136.
The North East bucked the downward trend being the only region to experience growth, with a monthly increase of 4.1%.
Estimated average house prices by region 2012:
|Yorkshire and Humberside||£188,800|
|Source: NHF "Home Truths" 28/08/08|