House prices will rise by just over one per cent in 2005 after years of double-digit growth but the risk of a crash has eased, according to a Reuters poll of 24 economists.
The survey, carried out between August 15-17, showed only an 11 per cent chance of a housing market crash in the next year - down slightly from a forecast of 14 per cent in last quarter's poll in May - with forecasts ranging from five to 25 per cent.
The majority of economists defined a crash as a sharp drop in prices of between 10 and 20 per cent within a year.
The housing market is a key influence on consumer spending in Britain where two-thirds of households own their home.
"House price inflation will remain weak through 2005 as the monthly rate stays essentially flat and last year's strong rises fall out of the index," said Trevor Williams at LloydsTSB Financial Markets in London.
"Affordability is returning to the market after the excess of 2003 and 2004. But there still remains a need for house price inflation to remain roughly stagnant for a few more years, restoring value as earnings grow faster than house prices."
The median forecast showed house prices, based on the main house price indices, will be about 1.1 per cent higher in the fourth quarter this year from the same period in 2004.
The poll's results are in line with recent surveys by major mortgage lenders Nationwide and Halifax and government figures issued by the Land Registry which have all shown house price inflation at multi-year lows.
The Bank of England's rate cut to 4.5 from 4.75 per cent earlier this month should help revive activity in the housing market although a fresh double-digit boom in prices seen last year is unlikely, economists said.
"While the risk (of a crash) is certainly present, the Bank of England has plenty of scope to cushion any decline," said Lorenzo Codogno at Bank of America in London.
Mortgage lending by banks slowed considerably in July to its weakest level in three-and-a-half years, as potential buyers may have postponed getting mortgages in anticipation of the cut.
Global Insight's Howard Archer said the bank's 25 basis point rate cut - its first cut in two years - would provide limited support to the UK housing market.
"Buyer affordability will also benefit over the coming months from the fact that annual house price inflation has now fallen well below annual earnings growth (4.1 per cent in the three months to May)," he added.
Nineteen economists said house prices were overvalued while two said they were not, but affordability should improve if prices stabilise and earnings continue to rise. The median of 15 forecasts showed current prices were about 12 per cent overvalued, down from 15 per cent in May's poll.
The median of 11 forecasts showed the average house price, based on the main house prices indices, at £162,000 by the end of 2005.
House price measures vary widely. The Halifax reported an average price of £162,994, compared with £158,348 recorded by the Nationwide in July. The Office of the Deputy Prime Minister said its average house price stood at £184,152 in June.
Deteriorating labour market conditions, a sharp slowdown in the global economy and fresh terror attacks in Britain were cited as main risks to the housing market.
"House prices are overvalued and an abrupt correction remains a key downside risk for the economy," said Nick Kounis at Fortis Bank in Amsterdam. "But so far it has been a soft landing and that is likely to remain the case as long as the macroeconomic background remains benign."