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HBOS Economic Forecast Update for 2005 - 26/07/05

Key Points:

  • We continue to forecast a 2% fall in UK house prices in 2005. House prices over the first half of the year have developed in line with our forecast in December 2004 with no change in prices overall during the first six months of 2005. This year's predicted small fall follows nine years of rising house prices when the average UK home has increased in value from 61,564 to 162,850, a 160% increase.
  • For the first time since early 2001, annual average earnings growth (4.1%) is outpacing annual house price growth (3.7%). We expect earnings to continue to grow faster than house prices, so the house price : earnings ratio should decline from its current level of 5.5 to 5.2 by the end of 2005. This should ease somewhat the affordability difficulties faced by first-time buyers.
  • The housing market is sound. At 28.57 million, the number of people in employment in the three months to May was 184,000 higher than a year earlier. Past major housing market downturns have all been caused by a combination of economic recession, steeply rising unemployment and significant rises in interest rates directed at controlling retail price inflation. There is very little likelihood of a similar combination occuring over either the short or medium term.
  • The north/south house price divide will narrow further. House price growth outside the south, especially in Scotland, Wales and Northern Ireland, will deliver a further modest reduction in the north/south divide. We forecast that average house prices in the south will be 1.6 times as high as in the north at the end of 2005, compared with 1.7 times in 2004.
  • Base rates will fall to 4.25% by the end of 2005. We expect the recent signs of a slowdown in consumer spending growth to be confirmed, giving the Bank of England scope to cut rates, with the first reduction likely in the next few months.


UK Housing:

Regional Housing:



UK Economy:

Interest Rates:

Martin Ellis, Chief Economist, commented:

"The UK housing market is on course for a gentle slowdown. We continue to expect a 2% fall in house prices this year nationally. This slight decline should be set against nine consecutive years of rising prices, during which the average home in the UK increased in value from 61,564 to 162,850."

How to get further information

Further details about this research can be obtained from HBOS.
Email: pressoffice@HBOSplc.com

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