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House prices 'to fall 30pc by end of decade'

The bubble is about to burst as property values rise to a level many prospective buyers cannot afford, claims a market expert. Becky Barrow reports

House prices could fall by 30 per cent over the next five years, according to Tony Dye, the fund manager known as "Dr Doom" for his accurate if heavily delayed prediction of stock market decline.

Mr Dye, who became prominent in the City through his consistently pessimistic approach to the equity market during the 1990s, said that recent house price growth would "all end in tears". "I have thought this for some time, but I think we really are probably somewhere near the end of it [the boom]," he said.


Tony Dye: 'herd instinct'
Mr Dye's comments will fuel concerns that Britain's housing market is a bubble that is waiting to burst as prices rise to levels that many cannot afford.

A buyer would now have to find more than £150,000 to buy the average home, which is about seven times the average salary in this country, according to the Halifax.

Mr Dye, who runs Dye Asset Management, an investment management group, said: "Everyone is hoping for a soft landing but no, we don't have soft landings in things like this, ever. The only way you could stop that is by government interference but this market is just too far gone for that."


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Mr Dye, who partly blames the "herd instinct", joins a small but growing band of housing market sceptics who continue to predict a collapse despite the publication of endless surveys showing that prices are still rising.

Earlier this year, a report entitled "Bubble Trouble" was published by Durlacher, a small investment bank whose market capitalisation of £23 million means that it is worth less than some of London's most expensive properties.


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The author, David Pannell, predicts a fall of up to 45 per cent, triggered by various factors such as weakness in the buy-to-let sector and mortgage companies being too generous with the amount that they are prepared to lend.

He said yesterday: "You need a psychologist not an economist to explain the housing market at the moment because it is illogical what is happening."

For home-owners who are worried by Mr Dye's comments, made during an interview with the Financial Times, they should remember his track record.

During the 1990s, when Mr Dye attracted the "Dr Doom" nickname, he was also called "the City's most famous pessimist" for his insistence that many shares were over-valued.

Mr Dye, who was chief investment officer of Phillips and Drew, stuck by this view at a time of a stock market boom when everybody seemed to be making money apart from his funds.

He left the company in March 2000, a moment that ironically signalled the decline that he had been predicting for several years. By the end of 2000, the FTSE index of Britain's 100 biggest public companies had fallen by 10 per cent. "I'm now less wrong than I was," Mr Dye said at the time.

Home-owners may be comforted by the fact that it took a long time for Mr Dye's prediction to be correct, and his pessimism proved to be an expensive mistake for several years.

In the housing market, anybody who had listened to other similarly pessimistic predictions over the last few years and decided to rent, not buy, would have missed out on a sharp rise in prices.

Optimists still far out-number pessimists in the housing market, with one saying yesterday that "crocuses were more likely to be found on Mars" than Mr Dye's prediction come true.

John Wriglesworth, the economist at Hometrack, the property research group, said that several bad things would have to happen for such a pessimistic forecast to come true.

A decision by the Government to increase the rate of stamp duty, sustained terrorist attacks and the Bank of England's monetary policy committee voting to double the base rate would be likely to cause a downturn.

Despite the doom-mongers, two housing experts - the Nationwide and Hometrack - have recently upgraded their annual forecasts as prices continue to rise at a rate which was not anticipated. Between January and March, prices rose by 6.2 per cent, according to the Halifax.

Prices in some parts of Wales, which used to be immune to price inflation, remaining one of the few affordable parts of the country, have risen by more than 50 per cent over the past 12 months.

http://www.telegraph.co.uk/news/main.jhtml?xml=/news/2004/04/14/ndoom14.xml&sSheet=/news/2004/04/14/ixnewstop.html