The paper is written by Rob Thomas, one of the leading commentators on the UK housing market and the first analyst to forecast the sustained upswing in the housing market from the mid-1990s.
UK Housing Economics forecasts that house price inflation (HPI), as measured by the Halifax house price index, will rise by 4 per cent in 2005 and by 6 per cent in 2006.
The paper questions the widespread negative view about the prospects for the housing market in 2005.
It says these views fail to take account of housing as an asset which provides superior income to equities and also fails to take account of the way prices are set in the housing market, with lower demand met initially by lower transaction volumes with a sluggish price response.
The paper also questions comparisons with the late 1980s housing boom, saying that the two key differences are that the current housing upswing has not been accompanied by a surge in young first-time buyers (FTB) and that the balance of supply and demand is markedly tighter now than in the 1980s.
Thomas said: “The impression has been created that we have a house price bubble.
“While housing is fully valued, a comparison of rents and mortgage costs suggests that buying remains financially attractive at these prices both for investors and owner-occupiers.
“The positive short-term demographic outlook and an inadequate rate of new house building provide some further support.’ He added that concerns about buy-to-let investors exiting the market and the disappearance of FTBs have been overblown.
Kerry Hanson, economist at Nationwide Building Society, said: “We wouldn’t necessarily agree with these estimates about where house prices are going. “We expect them to only rise by around 2 per cent this year as there has been a slowdown resulting from rising rates and affordability factors.”
