House prices to beat peak in 2014

April 1, 2013

Help to Buy will boost prices more quickly than supply. Cebr predicts an average UK home will cost £227,000 in 2014, surpassing the pre-crisis peak for the first time.

Economic fundamentals push house prices to £267,000 by 2018.

 

New Cebr forecasts show that a typical house in the UK is expected to cost £227,000 in 2014, surpassing the 2007 pre-crisis peak for the first time.

 

Next year, the leading forecaster expects house prices to be 2.3% higher than in 2007.
Cebr also predicts the average home price will be £222,000 this year, 1.4% higher than in 2012, but just under the peak achieved immediately prior to the financial crisis.
In the short term, lacklustre wage growth, domestic banks’ ongoing recapitalisation efforts and Eurozone financial unrest are expected to subdue house price growth this year and next.

 

Thereafter, a strengthening economy will lead to rising wages, while population growth is projected to outpace housing supply increases. We predict these two market fundamentals will lead to accelerating house price growth over the medium term. By 2018, we expect a typical UK home will cost £267,000, as house prices rise by 4.6% over that year. In 2018, we predict UK house prices will be 20.4% higher than this year.
The Government’s Help to Buy (HtB) scheme is aimed at assisting buyers in getting on, or moving up, the housing ladder. It is also targeted at stimulating supply growth as homebuilders respond to higher prices.
We have not included the impact of Help to Buy in our central house price forecast, because the scheme’s details have not yet been fully disclosed. However, we have formulated a back-of-the-envelope, stand-alone estimate of its likely impact on housing supply and prices over next few years.

 

In 2014, we estimate that the scheme could raise prices by up to 0.8% without having any appreciable impact on housing supply. In 2015, we expect that homebuilders will respond to the higher prices which the scheme brought about in 2014. This means that in 2015, the Help to Buy could lead to an additional 4,800 homes being built.

 

Daniel Solomon, Cebr Economist and main author of the report, said: ‘By 2018, we expect the typical UK home will cost £267,000 – over 20% more than this year. Gradual wage and population increases will be the fundamental drivers of this medium-term trend.’
‘We expect the Chancellor’s new Help to Buy scheme will push up house prices before it raises housing supply.’
‘We predict that the scheme’s effects will be quite modest, but it could support the construction of roughly 5,000 new homes in 2015. This supply boost could provide a welcome route on to the housing ladder for a small number of aspiring homeowners.’

 

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