Economists split on house prices

MORE than 40% of economists expect house prices in the UK to fall over the next three years, a poll has revealed.

It follows a recent warning by the Governor of the Bank of England, Mervyn King, that the chances of a crash in the housing market had increased in recent months. Earlier this month the bank put up interest rates for the third time this year to 4.5%.

Around 255 members of the Society of Business Economists took part in the survey by the BBC's Today programme. Of those, 42% said they expected house prices to be lower by the middle of 2007 than they are now, with 18% predicting a drop of 10% or more.

Over the last five years house prices have risen by around 15% a year, on average. Figures published by Halifax bank show the average UK house price has more than doubled to £158,000 in the same period.

Many pundits believe this level of growth is unsustainable, arguing that the market has run too far ahead of itself and that a correction is inevitable.

Chairman of the SBE, David Walton, pointed out that in the past a sharp rise in house prices had been accompanied by a similar increase in salaries.

'This time round that won't happen because the Bank of England will not allow wage inflation to pick up sharply. Therefore, the only way to correct this over-valuation is an extremely long period where house prices go nowhere or, more likely, a period in which house prices actually fall modestly.'

Yet the news is not all bad - 58% of economists in the survey believed house price values were likely to remain constant or even rise slightly over the next few years. This included nearly 40 members who predicted an increase of 15% or more in the housing market.

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