| Abstract: | We, together with almost every other commentator on the UK housing market, forecast a recovery of house prices and turnover during 1991. These hopes have been disappointed. This Forecast Release addresses some of the questions raised by this prolonged weakness in the housing market. Why did we, and so many others mis-judge the outlook for house prices and housing investment? Are there structural problems, especially those associated with the adjustment to the inflationary discipline of the E M, which are preventing a revival? When will recoverly take place and can there ever be a house-price boom similar to 1984–1988 again? One reason for the unanticipated weakness of the housing market is the growing problem of mortgage arrears and possessions. This can be expected to produce at least some temporary weakening of house prices as a reaction to the current volume of empty properties being put onto the market. There is a more fundamental reason for the current weakness of house prices. Unlike previous house price booms and busts, the present recession offers no relief to the hard-pressed borrower in the form of a rapid inflation of average earnings. Difficulties with mortgage repayments, for highly indebted households, are set to continue for some time. These lessons are not being lost, either on prospective purchasers who are’ being discouraged from taking out substantial mortgages in relation to their incomes, or on mortgage lenders who are being much more prudent in the setting of mortgage to- income and mortgage-to-price limits. The result is a long overdue adjustment of British attitudes towards own er-occupation. |
