Paul Diggle, property economist at Capital Economics, says that growing fears over inflation and high house prices means house price rises can not be relied on.
He adds that residential property is currently a poor prospect for those looking for decent real terms capital gains over anything less than the very long-run.
Diggle says: “Real house prices look to be something like 20% too high relative to trend. If they fell by that amount over the next two to three years, it would take a further ten years of trend house price growth before investors broke-even in real terms.
“And that’s before factoring in mortgage interest payments, running costs, depreciation and the opportunity costs of the equity tied up in the property.”
He also warned that inflation will be more of a problem next year than either we or the Bank of England expects.
He also claims that Nationwide’s prediction of 2.9% house price growth in the future is reasonable but can’t take place alongside huge unemployment.
He says: “Certainly, we do not believe that the current level of real house prices would be sustainable in the face of a renewed labour market downturn, let alone a sharp rise in interest rates that would be triggered by a period of entrenched inflation.”