House prices just 3 per cent overvalued

02 August 2004
The centre for economic business research (cebr) has criticised the newest figure of 30 per cent for house price over valuation, commenting that it is in fact nearer to three per cent.

The National Institute for Economic and Social Research believes house prices are 30 per cent overvalued, but this is far from presenting the true picture counters the cebr.

The think-tank is adamant that house price inflation is starting to decelerate and should go negative during 2005. Further to this it expects some undershooting in 2006 before the market starts to recover in 2007 and 2008.

Explaining the 30 per cent figure, cebr points out that the National Institute's analysis does not appear to take into account supply-side factors such as population growth, household growth, planning regulations and the supply of housing land.

As such, it also does not appear to make any allowance for the fact that with mortgage rates now oscillating around five or six per cent, borrowers can afford to take on larger mortgages than in the 1980s when the average mortgage rate was 12.2 per cent.

However, once factors like these are included, the cebr estimates that the current level of overpricing is only three per cent.