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‘House price recovery won’t happen for five years’

Hetal Mehta, Senior Economic Advisor to the Ernst & Young ITEM Club said: "ITEM believes the current stabilisation in the housing market is a false-dawn. Price rises largely reflect the acute shortage of available properties, with many homeowners either trapped in negative equity or reluctant to sell for fear of locking in the losses of the past two years. A small number of cash-rich buyers have supported prices, but the supply of these funds is limited, which means prices are likely to dip again in the first half of next year.

"Mortgage lending remains depressed and with 56% of owner occupiers having a mortgage, it would be difficult to make a case for a sustained pickup in prices without a recovery in mortgage lending. However, this would still appear to be some way off. Banks are continuing to restrict the amount of money that they are willing to lend, with them looking to strengthen, rather than expand, their balance sheets."

ITEM suggests that prices are likely to stagnate for the next two years, before picking up again gradually from 2011 as the wider economy strengthens and credit conditions ease. But it will take more than five years for prices to return to their late-2007 peaks.

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