Five-year house price slowdown
A LEADING group of economists have warned the housing market is facing at least five years of pain, with the Midlands and the North to be hit hardest.
Capital Economics and Cambridge Econometrics, which both specialise in the property market, claims that the ratio of house prices to disposable income is at near record levels, making it harder still for people to buy their first place.
In London, the average property is now worth eight times the average workers' salary, the same as it was before the last property crash in 1989/90.
Saxon Brettell, director of Cambridge Econometrics, said: 'Eight was the figure that it reached in 1988/89 for London and London fell rapidly from eight times income to four times income.
'We've had eight years of sustained growth in house prices relative to income and that suggests to me that the market is overvalued and that there is obviously an adjustment process to go through. But it could be an adjustment process over the next five to 10 years.'
Capital Economics property economist Ed Stansfield said the regions will suffer the sharpest correction in prices. He claims prices in the Midlands and North have grown rapidly over the last two years as the London and south east market has slowed.
He said: 'Given the disparity between regional property prices and regional earnings growth we think the boom has run too far in those regions that have been seeing the most rapid growth recently. That is why we are expecting these regions to experience the biggest downturn in the current correction.'
Stansfield predicted lenders will respond to the weakening market by offering cheap mortgage deals, particularly for remortgages.
He added we are already seeing the affect of a weaker property market with a spending slowdown on the High Street. A number of leading names, including Boots, Marks & Spencer, Next and French Connection, have all recently reported difficult market conditions.
In an interview with financial website Cantos.com, he said: 'If customers are finding it difficult to meet their everyday aspirations and needs then I think the idea that the property market can remain buoyant and healthy in that kind of environment is one that seems a little contradictory to me.'
