DIY spend faces long term decline

Published:  08 April, 2010

LONDON: The housing market may be trapped in a long-term bear market and not bounce back to the peaks reached in 2007 for generations, a leading economic consultancy warned.

British property prices benefited from a 25-year bull market since the 1980s, pushed up by low inflation and real interest rates, and the influx of millions of younger less well-off buyers who were suddenly able to get hold of mortgages, according to Lombard Street Research. But the organisation warned there could be a similarly long period in which economic forces work in the opposite direction.

The warning, from LSR's senior economist, Jamie Dannhauser, will cause particular concern, since it comes amid hopes that having slumped by around a fifth since the peak of the bubble, the housing market has now recovered.

Mr Dannhauser said that although house prices may continue to rise for some months, buoyed by short-term factors such as low interest rates and thin trading, the impact of the credit crunch may mean that the long-term direction of the market could take a turn for the worse.

He said: "My medium term view now is that real house prices over the next three to five years will be flat at best. But it's quite conceivable that the equilibrium level of real house prices of 06/07 will not be reached again."

This implies that although nominal house prices may once again shoot through the levels they hit at the peak, the price when adjusted for inflation and the cycle may never again attain such a level.

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