City commentators shrug off Cambridge Econometrics' prediction that South-east market is heading for a fall.
Housebuilders and the City this week brushed aside an influential think tank's prediction that house prices in South-east England are not sustainable.

Sector watchers said a collapse in house prices was highly unlikely because consumer confidence in the economy was strong.

The report, by Cambridge Econometrics, warned that the housing market might be heading for a collapse because house prices in the country's most densely populated region were too high.

It pointed out that houses in the South-east cost almost five times the average household income. It noted that these levels had not been reached since the overheating market of 1988 and 1989.

But Swan Hill chief executive John Theakston said the housing market was driven by people's confidence in their job prospects and confidence was stable at the moment.

Theakston said although London house prices were high, houses were generally affordable as interest rates are lower than they have been for more than 30 years.

The feeling that the housing market would be less volatile in future was adding to the optimism, he said. Theakston added: "The market will remain cyclical, but prices will be less sharply cyclical than in the past. You won't see a major crash or a short-term boom." Most housebuilders raised their average house prices last year despite selling so few homes that the completion rate fell to its lowest level since the Second World War.

Teather and Greenwood analyst David Taylor said the report's findings had no immediate implications for the sector. He said: "Housebuilders aren't having any problems selling homes, it's getting them built."

Tony Pidgley, managing director of Berkeley Group, said the demand for new houses was as strong as ever, backed by low interest rates and high disposable incomes.

Peel Hunt analyst Stephen Rawlinson said that although the report would make some investors wary in the short term, the interest that had seen most stocks reach all-time highs this year would continue.

He said: "People generally think housebuilding is all right for now."