House prices could remain static for several years while the market waits for first-time buyers' incomes to catch up with the cost of property, new figures indicated today.
Property website Rightmove said the spring bounce in asking prices had ground to a halt, with the cost of the average home rising by just 0.2 per cent during the five weeks to June 13.
At the same time the rate of annual house price inflation in England and Wales more than halved to just 2.4 per cent, down from 4.9 per cent the previous month.
The group said annual growth looked set to grind to a halt in the coming months as a lack of demand for property at current prices had applied the brake to further rises.
It added there was strong evidence the market was heading for a soft landing, as low interest rates and high employment meant homeowners were not forced to sell.
But it claimed if trends continued it would take seven years for the incomes of firsttime buyers to rise enough for affordability levels to return to their long-term average.
However, if interest rates fell by one per cent and current levels of wage rises continued this time could be reduced to just four years.
Miles Shipside, commercial director of Rightmove, said: "As many sellers are refusing to part with gains they have made, buyers are forced to make up the affordability gap.
"The reality is it will take seven years of static house prices and wage inflation to bridge this affordability gap.
"In the meantime we should expect lower sales volumes for several years as the market waits for buyers to play catch-up." He added wages were rising at 4.6 per cent a year, and this was the first time increase in average earnings had outstripped house price inflation for a decade.
The average property in England and Wales now costs £198,642, around £495 more than five weeks earlier.
Rightmove said the number of unsold properties estate agents had on their books increased further during the period to average 73, up from 70 five weeks ago and the highest level since the group's records began in 2001.
Meanwhile, the fall in house sales could lead to a drop in consumer spending.
The Bank of England said people were two to three times more likely to buy certain goods when they moved home than at other times.
But it added that the number of people who bought a new home represented only a small proportion of all households, so a fall in property sales was likely to have only a moderate impact on overall spending.
The report found that 47 per cent of people moving house bought new white goods, such as freezers, washing machines and dishwashers, compared with just 19 per cent of people who stayed were they were.
At the same time 70 per cent of movers bought other durable goods, compared with 48 per cent of people who stayed put, and 34 per cent of movers bought audio-visual equipment, compared with 23 per cent of other households.
The difference in spending levels was particularly marked in the area of home improvements, with movers spending an average of £3,548, while those who stayed put spent just £1,581.
One reason people may be more likely to buy certain goods when they moved house was because they wanted things to match their new home.
Alternatively, it said it may be more efficient for people to buy new durable goods when they moved home if they planned to borrow money for the purchase, as they could use equity from their property or have the cost included in their mortgage.
Overall the Bank estimated that if the number of homes being sold fell by 100,000, annual spending on goods could drop by 0.9 per cent.