2004 - a game of two halves?
Issued - December 2003
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| Forecast | 2002 | 2003* | 2004* |
|---|---|---|---|
House Price Index (Dec on Dec % changes) |
25% | 15% | 9% |
London (Q4 on Q4 % changes) # |
21% | 7% | 6% |
West Midlands (Q4 on Q4 % changes) # |
30% | 17% | 9% |
North (Q4 on Q4 % changes) # |
27% | 29% | 12% |
Sales, m |
1.59 | 1.39 | 1.40 |
| # Our full regional forecast for the year ahead is in table 2 in the pdf version | |||
Commenting on the forecast Alex Bannister, Nationwide's Group Economist, said: "Given benign economic conditions, with real post-tax mortgage rates at a 20-year low and unemployment at a 28 year low it is no surprise that house prices will have risen by around 15% in 2003. However, real disposable income growth was the lowest since 1994, suggesting that homebuyers' expectations played an important role in boosting house price growth during the year. In contrast, house sales fell back to 1.39m - with the fewest first-time buyers for two decades. 2004 is unlikely to see a significant rise in first-time buyers as affordability deteriorates further in the face of higher house prices and mortgage rates "However, we expect £137bn of remortgaging in 2004, compared with £123bn this year, and almost the same again will switch to a better deal with their existing lender. Many borrowers will take this opportunity to withdraw equity, particularly as house prices will continue to rise, although increased caution may reduce growth for this type of lending. "The housing market will carry considerable momentum into early 2004 and we expect house price growth to be biased towards the first part of the year. Later in the year, rising mortgage rates and slow income growth will dampen confidence. House price expectations are also likely to become more realistic, especially in the North where prices are currently rising at an unsustainable pace. We expect UK house price growth of 9% in 2004. "There will be less regional variation than in 2003. The Northern regions are expected to see the highest price growth, at around 12%, as a result of strong labour markets and positive house price expectations. London is forecast to be the slowest growing region for the second year running given stretched affordability. However, improved prospects for City jobs and supply shortages will keep house prices rising at around 6% in 2004. "Recent years have seen expectations push house price growth above what economic conditions would suggest. A reversal or continuation in this trend are both plausible scenarios in 2004 and provide the most significant risk to our forecast. In addition, economic imbalances remain in the UK, and US, with high private sector debt levels suggesting corporate and personal sectors alike may at some stage pull their horns in. It is unlikely that a small rise in interest rates would cause such a retrenchment since, even though households are highly indebted, most can cope with a modest rise in interest rates. A deteriorating labour market, therefore, remains the most plausible forecast risk."
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To read the full article on the 2004 Housing Market Forecast; click here