House prices will rise by 25% over the next five years, say experts

In defiance of a welter of doom-laden figures on the property market, research for the National Housing Federation claimed the downturn would be over by 2010, leading to a return of rising prices.

Its optimism was based on the shortage of property being so acute that the decline will not become a full-blown bust.

But in the short-term there is no relief. The research, carried out by Oxford Economics, forecasts prices falling by a further 2.1 per cent next year before beginning to rise in 2010, edging ahead by 1.3 per cent.

Brighter outlook: The National Housing Federation claims the fall in house prices will be over by 2010

It predicts a rise of 5.2 per cent in 2012 and 9 per cent in each of the following two years.

The study found that only 75 per cent of the new homes needed are actually being built each year, with 167,577 completed in 2007, and the figure likely to fall to just 120,000 this year.

An estimated 223,300 new households are expected to form each year between now and 2026.

The NHF, which represents housing associations in England, said the report showed it was critical the Government continued to invest in social housing.

It comes as official figures showed the annual rate of house price growth fell for the 10th month in a row during June to hit a new record low.

Chief executive David Orr called on the Government to support associations in buying unsold properties as well as helping them develop mortgage rescue schemes for people in danger of losing their homes.

But there was more gloom for homeowners yesterday when figures from analysts Hometrack found that house prices have fallen for the tenth month in a row  -  wiping £10,000 off values and taking the average down to £168,500.

Hometrack says the average cost of a home has fallen by 4.4 per cent during the past year.

East Anglia saw the biggest drop in prices during July, with the average cost of a home falling by 1.4 per cent, while slides of 1.3 per cent were recorded in Greater London, the South East, South West and East Midlands.

And, according to one of the City's most respected economists, the credit crunch could wipe a third off the value of the housing market and push the economy into recession.

Roger Bootle predicts inflation will 'rise towards 5 per cent', although he thinks that interest rates are likely to be cut next year.

Mr Bootle, managing director of Capital Economics, warns in Deloitte Economic Review of a more than 30 per cent drop in the value of homes by 2010, with 'severe, adverse effects on household spending and investment'.

Runaway food and energy prices will leave little room for a cut in borrowing costs to help the housing market.

Only when inflationary pressures have abated will interest rates come down.

Mr Bootle's findings chime with a report by accountants KPMG, which shows more than half of employers plan to cut jobs.