Stabilising housing market a 'false dawn'
Economic forecasters have warned house prices will not reach their 2007 peak for another five years
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By Matt Fortune. |  |
Monday, 14, Sep 2009 04:06
By Sarah Garrod.
Economic forecasters have warned house prices will not reach their 2007 peak for another five years, and only a lending pick-up will lead to recovery.
However, the Council of Mortgage Lenders (CML) has said today mortgage lending is improving, saying "gross lending rose significantly" for the second month running.
The Ernst & Young Item Club released a special report today which highlighted that despite recent signs of 'green shoots' in the housing market, recent price rises could not be sustained beyond the spring of next year. The forecasters say the current rises could indicate a "false dawn leading to a 2010 dip".
The prediction from Ernst & Young is that prices will stagnate for the next two years, before picking up from 2011. However, 2007 peaks are not predicted to return for another five years.
Hetal Mehta, senior economic advisor to the Ernst & Young Item Club said: "Item believes the current stabilisation in the housing market is a false-dawn.
"Price rises largely reflect the acute shortage of available properties, with many homeowners either trapped in negative equity or reluctant to sell for fear of locking in the losses of the past two years. A small number of cash-rich buyers have supported prices, but the supply of these funds is limited, which means prices are likely to dip again in the first half of next year."
Despite this forecast for the beleaguered property market, the CML has found that while remortgaging remained unsurprisingly weak, lending for house purchases showed its first material annual growth in July for the first time since early 2007.
Lenders discovered mortgage lending in July was concentrated more towards home movers, rather than first-time buyers. However, compared with a year earlier the rise in first-time buyers was higher, up 22 per cent, compared with a 17 per cent rise in the number of movers.
Andrew Goodwin, senior economic advisor to the Ernst & Young Item Club, said it was those trying to get on to the property ladder that would be vital to the market recovery.
He said: "In order for the housing market to function properly it is essential that first-time buyers are bought back into the market, else the current status quo of a low number of transactions, dominated by speculative cash buyers, is likely to be maintained.
"It's tempting to call the turn in the mortgage market at this point, and there is certainly concrete evidence that lending for house purchase is increasing. But there are still constraints affecting the lending industry's capacity to fund increased lending, as well as less consumer motivation to remortgage for the time being. The overall lending picture is likely to stay relatively subdued for some time, especially as the wider economy is far from robust as yet," warned CML economist Paul Samter.
The National Association of Estate Agents (NAEA) have also pointed to first-time buyers as key to a housing market recovery, but are more optimistic about the sector's upturn as a whole.
President Gary Smith said: "There is a long way to go before things stabilise - and a real need for sensible government policies and responsible lending - but indicators do suggest that the bottom has been reached and that the slow process of recovery may have begun."