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House prices: will we ever get it right? The big names failed in their predictions for 2003. Which is a pity, because their forecasts for 2004 are quite rosy. Paul Farrow reports
Sunday Telegraph (London, England)
Paul Farrow
January 4, 2004
THERE IS little doubt that, as a nation, we are obsessed with monitoring house prices.
Go on, admit it. How many times did you scour local newspapers to see how prices were doing in your area last year? Can you walk past an estate agent's window without having a quick glance just to see whether there is a similar property to yours up for grabs? Have you ever viewed a property with absolutely no intention of buying?
According to the Woolwich, more than half the population is guilty of the first two, while one in 10 are "phantom buyers" - people who pretend to be prospective homebuyers just to look round a house.
As a result of all this, there would have been hundreds of thousands of nervous homeowners this time last year. The property market went mad in 2002, with house prices soaring by around 25 per cent and many homes, particularly in the South, being snapped up as soon as the "For Sale" board was in the ground.
A year ago, doom and gloom merchants were already forecasting a crash. House prices had shot up to unsustainable levels, they said. Interest rate hikes were on the cards and first-time buyers would dry up, unable to afford to get their foot on the property ladder. The result, they said, would be carnage.
As we now know, the predicted crash failed to materialise. Price growth slowed, but not by nearly as much as some experts had predicted. Average prices rose by 15 per cent, which was nearly double the annual average of 8 to 9 per cent over the previous 20 years.
The reason? People kept on borrowing and borrowing as interest rates fell further. The Bank of England base rate, which began the year at 4 per cent, was down to a 48-year low of 3.5 per cent in July, rising only slightly later in the year to 3.75. Gross mortgage lending grew from around pounds 220bn in 2002 to pounds 270bn in 2003.
This will certainly go down as the year the North fought back, with the average house price rising by 33 per cent. In 2002, it was properties in the South that enjoyed booming prices. But, according to Halifax, the 30 towns enjoying the biggest price increases this year were all outside the South of England.
Brighouse in West Yorkshire had the largest average annual increase with house prices up by 65 per cent. In its wake came Ashington and Prudhoe in Northumberland, Spennymoor and Seaham in Durham, Market Drayton in Shropshire and West Bromwich in the Midlands, which all experienced 50 per cent-plus increases.
Property values in the South experienced average growth of a more pedestrian 10 per cent, but the region remains the most expensive place to live. Indeed, the three most expensive towns in 2003 were the same as in 2002.
The average house price in Henley-on-Thames, the most expensive place in the country, is pounds 411,794, while a home in Richmond, Surrey, the second most expensive, would set you back an average of pounds 381,317. In Weybridge, also in Surrey, homebuyers would have cough up an average of pounds 376,427.
So what have the great and the good got to say about what's in store for the housing market this year?
WOOLWICH
"Interest rates will be at 4.25 per cent and house price inflation around 5 per cent by the end of 2004. Gross lending is expected to remain at high levels, growing by a further 5 per cent to pounds 285bn by the end of the year."
HALIFAX
"We anticipate that interest rates will increase during 2004 and end the year at around 4.5 per cent. Following two years of exceptional house price growth, house prices will continue to ease as the impact of higher interest rates, coupled with increasing problems facing first-time buyers, combine to put a gradual brake on house price inflation.
"The annual rate of house inflation is expected to be 8 per cent. The rate of growth in mortgage lending in 2004 is also likely to ease. We expect it to increase to around pounds 280bn."
NATIONWIDE
"The Monetary Policy Committee will only need to raise interest rates to 4.75 per cent by the end of 2004. Our forecast is for house price inflation to rise 9 per cent in 2004, but localised price falls cannot be ruled out. It is conceivable that prices could stagnate and fall in some areas this year."
HOMETRACK
"It will be yet another healthy year for the housing market, if not as strong as last year. The main reason for our confidence is sustained low mortgage rates; most economists are predicting a rise of no more than 1 per cent this year. Our prediction is for house prices to rise 4 per cent nationally. There is very little chance of a housing market crash in the next 12 months."
For more information, please visit http://www.gale.com.
