House prices on the way up for 2007

Hometrack has predicted the housing market is moving into “unchartered territory”, and has forecast a 4% rise in house prices for 2007.

The automated valuation model provider says the supply and demand imbalance and low levels of housing turnover will drive up house prices.

Richard Donnell, director of research at Hometrack, says: “The housing market is moving into uncharted territory as we enter a period of low growth and lower turnover, a trend not seen since the 1950s.”

He says the boom of the last decade was driven off historically low levels of housing turnover, a consequence of relatively high cost mortgage repayments in a low inflation environment.

Donnell adds: “We expect just 5.5% of private housing to change hands next year, which means the average household is moving just once every 18 years. The problem is that low levels of liquidity in what is an already illiquid market are likely to increase the short term volatility in house prices. This is likely to impact on asking prices more than underlying values.”

However, Andrew Montlake, partner at Cobalt Capital, is more optimistic about house price growth and predicts a whopping 7% increase in 2007.

He says: “There are many things to be taken into account, and in London there continues to be a shortage of good quality housing.

“As we approach what appears to be another good bonus season for investment bankers, it could be argued that many will actually be looking at double bonuses.”

He adds: “Some people are still sitting on last year’s bonus as they were unable to spend on suitable property earlier this year due to a shortage. This will increase demand on 1m-plus properties, and thus have an inflationary effect on prices, which could cause a ripple effect down the housing chain.”