No house price rise 'for seven years'

It could take seven years for house prices to rise again as the rate of growth grinds to a virtual standstill, a new study has warned.

11:52 20 June 2005

It could take seven years for house prices to rise again as the rate of growth grinds to a virtual standstill, a new study has warned.

Rightmove reports that house prices are now just 2.4 per cent higher than at the same time last year, when the property market was at the height of its recent boom.

But although wages are now growing faster than house prices, the online property service found that at the current rate it would take almost a decade for the market to recover fully.

"Having had it so good for many years, it's now payback time for the property market," said Miles Shipside, commercial director at Rightmove.

He added: "The reality is it will take seven years of static house prices and wage inflation to bridge this affordability gap. In the meantime we should expect lower sales volumes for several years as the market waits for buyers to play catch-up."

If the Bank of England were to cut interest rates by one per cent to 3.75 per cent, Rightmove believes the market could recover in just four years.

Such a cut is unlikely, however, leaving it up to sellers to take the slowing property market into account.

Howard Archer, chief UK economist at consultancy firm Global Insight, commented: "We are holding to our belief that the housing market is more likely to see an extended period of relatively subdued activity and soft prices rather than undergo a sharp correction."

Currently, sellers are refusing to accept the new state of the housing market, with the number of unsold properties increasing over the past four weeks to a record 73 per estate agent, while asking prices hold firm at record highs.

But with few sellers in financial distress and interest rates still relatively low, Rightmove believes that a "soft landing" for the property market is still on the cards.

"Prices of sales actually achieved have remained broadly static since the beginning of the year, but it's taken some sellers a few unsuccessful months of testing the market at higher figures to realise buyers can't or won't play ball this year," Mr Shipside observed.