Cebr more positive on house prices

A leading economic think tank has revised up its forecast for the housing market amid expectations of lower interest rates.

The Centre for Economics and Business Research (Cebr) had previously predicted house price falls in 2006 and 2007 before increases returned them to current levels by 2010.

But the authors of Cebr's Quarterly Housing Forecasts believe that a change in interest rates has strengthened the housing market, and are no longer predicting year-on-year falls in home values.

After five interest rate rises between November 2003 and August 2004, the Bank of England reduced interest rates by a quarter point in August 2005 to their current level of 4.5 per cent.

And with further interest rate reductions predicted, Cebr now says house price inflation will slow to 4.7 per cent this year and fall to 0.8 per cent in 2006, before rising to 2.3 per cent in 2007 and three per cent in 2008.

This contrasts with its July report, which says house price inflation would fall to 4.2 per cent this year, then to -2.8 per cent in 2006 and -2.2 per cent in 2007, and rise only by 0.2 per cent in 2008.

Cebr's managing director, Mark Pragnell, said: "We do not expect interest rates to move much over the coming year as the Bank of England balances out pressures on consumer price inflation on one hand with sluggish economic growth on the other.

"This more benign monetary policy has led us to upgrade our forecasts for the housing market. But there is a risk that if high oil prices cause interest rate expectations to turn around once more, the hosing market may weaken by more than we forecast."

Cebr says property prices should average £179,900 by 2009, rather than the £158,800 it forecast earlier this year.

However, while its latest forecasts are more optimistic, it still maintains that homeowners should prepare to hear the phrase 'sluggish housing market' for the next five to seven years.