House prices likely to retreat in 2007

A Reuters poll has suggested that property will cool off later this year and into next, thanks to with rising interest rates and overvalued property.

The poll of 29 economists and property analysts reports that house price growth will slow to 3.5 percent in 2007. That’s down from forecasts of 6% - 9% for 2006.

7 of 22 questioned told Reutersthat the market was overvalued.

It appears that with interest rates going up, house prices will go down. Gavin Redknap, UK economist at Standard Chartered told Reuters: “The key factor is mortgage rates, and the fact they have risen substantially will start to have an effect on the housing market in a pretty short period of time.”

But he added that there is still some momentum in the market.

John Butler, economist at HSBC said: “Interest rates have risen, are likely to rise a bit further, and most of that, if not all of that has been passed on by banks at a time when unemployment is rising and real income growth is being squeezed.”

“That is a bad mix for the housing market and …. there is a bigger chance now that we get a correction in 2007 than there was the last time interest rates were rising.”