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Reasons to be cheerful.

Byline: By Keith Stevenson

Contary to much recent commentary, the housing market appears not only to have stabilised but strengthened, with price rises returning an annual rate of 9.5%, an unexpectedly strong rate of growth.

Behind this surprising growth is a market which has realised that consumer spending remained weak last year and so interest rates would fall rather than carry on rising.

A major threat on the cost of borrowing has therefore been removed.

In the present environment of inflation targeting, no one doubts that if inflation really threatened to rise in any permanent way, interest rates would rise until inflation was headed back down. This lack of doubt ensures that inflation does not get a grip through rising wage settlements.

Indeed it could be described as a triumph of rational expectations in which the climate of monetary credibility fuels a self-fulfilling inflation control.

The positive end to 2005 prompts a look back over the past decade and in respect of house prices the North suffered a dreadful crash in prices in the early 1990s.

By the mid-1990s prices had stabilised and from 1996 they gained in strength to 2000, when they took off precipitately.

So, with a housing sector apparently in better heart than expected, will the debate on building more houses be re-opened?

There is talk of easing planning controls on land for housing and though this was called for in a report to the Treasury and in some national media, any attempts to ease controls should be treated with scepticism. Therefore the immediate future will see no drastic changes in the planning system and attempts to provide more land for housing will be incremental, much as it is now. On the overall economy the risk of a recession in 2006 is now not much more than negligible. This is a positive start to a year.

Keith Steventon is London-based head of research at property agent Atisreal.
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Title Annotation:Business
Publication:The Journal (Newcastle, England)
Date:Mar 8, 2006
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