'Double dip' in houses ruled out

The Centre for Economics and Business Research said house prices in the UK will increase around four per cent this year and continue rising every year until at least the end of 2014 as a result of a fundamental shortage of supply.

While it expects price rises to moderate from now until the end of 2011, it believes growth will firm up again in 2012 to around five per cent, followed by further rise of 5.4 per cent in 2013 and a 3.9 per cent increase in 2014.

Thecentre's predictions are at odds with a recent forecast from the National Institute of Economic and Social Research (NIESR), which said the market would fall eight per cent in real terms over the next five years.

Recent industry figures also raised fears the market bounce back was over, with Nationwide's latest index revealing a 0.5 per cent drop in prices in July – the first decline recorded by the building society since February.

This came after a number of less-positive readings from the sector as househunter numbers have dwindled amid uncertainty over jobs and the wider economy following the Government's emergency Budget.

The centre said: "It is unfortunate, but hardly surprising, that many commentators are currently purporting that the minor correction in house prices over recent months is a prelude to an even steeper decline that will engulf the housing market over the coming years."

"Those forecasters projecting a double dip have got it wrong," it added, saying that they have "ignored the housing market fundamentals".

It said the recent declines were simply a correction after big rises at the start of 2010.

Growth next year is likely to stall after tax rises and spending cuts, but the centre believes continued low interest rates and a shortage of new housebuilding in the UK will support prices over the long term.