House prices over the first half of the year have developed in line with the December 2004 forecast, with no change in prices overall during the first six months of 2005. This year's predicted small fallfollows 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%).
Halifax 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 occurring over either the short or medium term.
It is expected that 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.
The survey also forecasts 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. The results also revealed an expected slowdown of 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.