House prices are more affordable now than twenty years ago, despite last year's 10% price rise, says RICS in its latest residential economic forecast, published today. The combination of low interest rates and a firm economy has meant that the cost of buying a home now takes 20% of disposable income, less than half the cost in the late 80s.

The ratio of house prices to income had risen to 3.3:1 by the end of 2001, 10% above the average of 3:1 maintained in the recent past, but still less than a quarter of the level which was reached in the late 80s.

RICS chief economist, Milan Khatri, said: "The current economic and financial conditions have fuelled the house price boom. While these conditions remain unchanged, house prices will remain affordable and prices will continue to rise, though a weaker labour market could act as a brake. Inflation and interest rates are set to remain low in the first half of 2002, which should keep consumer confidence high and the market buoyant. However, this brings the risk that interest rates may need to rise in the latter part of the year."

The report says that the slowdown in economic growth will weigh on the housing market in the first half of 2002, with low interest rates just about managing to sustain further price rises. Later in the year, price growth will strengthen, as renewed economic growth will drive the market upwards. If the economy behaves as predicted, RICS believes that the pace of house price rises is set to slow to 6% in 2002, from 10% last year. This could help property become slightly more affordable for the many who are still finding that the first rung of the housing ladder is beyond their means, most of whom would strongly contend RICS' statement that property is affordable.

However, with this comes the rider - RICS says that if consumer confidence does not show a meaningful slowdown in the next six months, price rises in 2002 could be somewhat stronger than currently envisaged. This would stretch affordability further and also raise the risk that interest rates will need to rise aggressively later this year, pushing a housing slowdown into 2003.