Britain’s housing market will not crash, despite the prospect of a slowdown in the economy next year, according to the Ernst & Young Item Club’s new forecast for the economy. Sunday Times, Independent on Sunday, Financial Times.
Its forecast, using the Treasury’s model of the economy, predicts that the credit squeeze will slow the economy to 2.1% growth next year ? down from 2.5% in its June forecast ? compared with an annual growth rate of 3.3% in the third quarter.
But it takes issue with the International Monetary Fund, which last week warned that UK house prices could be heading for a significant fall. ‘Item does not believe that the tighter lending conditions for homebuyers will lead to a serious correction in UK house prices,’ the report says. ‘With the labour market strong, it is unlikely there will be a major housing recession.’
While prices in the housing market have no longer been rising at double-digit rates, demand has held up surprisingly well given increases in interest rates over the past year, and the widespread view (until the Northern Rock debacle) that further hikes were inevitable, Item said.