Halifax: Housing market will stay weak

Tim Wallace
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WEAK economic growth and persistent high unemployment will hold down house prices through 2012, Halifax warned yesterday in its housing market outlook.

Only record low interest rates will help stop the market falling further, the bank’s economists claimed, although mortgage funding pressures are expected to weaken this support.

Prices will keep rising in London, according to separate data out today from the Royal Institution of Chartered Surveyors (RICS), but remain stable or continue to fall elsewhere in the country.

Sales activity increased for the third month in a row, according RICS’s survey, with a net balance of 14 per cent of surveyors reporting a rise in sales in November compared with nine per cent the month before.

However, expectations of sales growth are slowing – a net balance of five per cent predict expansion, down from 17 per cent in October.

Halifax, too, forecasts stronger prices in the south east and London, as other regions’ economies are weaker, relying more on public sector jobs.

The government’s housing policy is only expected to have an impact in the longer-run.

“The long-standing deficit between supply and demand – whereby the rate of house building has failed to match the rate at which new households are being formed – has widened in recent years as levels of house building have fallen to record lows,” said economist Martin Ellis.

“Measures recently announced in the government’s housing strategy should help to boost housing supply over the longer term, but they are unlikely to be sufficient to eliminate the gap.”

Low interest rates will continue to have an impact – payments for the average new borrower have fallen from 48 per cent of disposable income in mid-2007 to 26 per cent in 2011 – but “the ratio of house prices to earnings still above its long term average, any price growth is likely to remain weak over the coming few years”, Ellis predicted.