House prices in the West Midlands will not return to their 2007 levels for at least another five years, experts warned today.

Recent improvements in the housing market are a “false dawn” and will not be sustained beyond spring next year, with renewed falls in value predicted in the first half of 2010.

The warning comes after indications that prices in the West Midlands have stabilised.

Figures released today reveal mortgage lending for house purchase was 19 per cent higher during July than in the same month of 2008 – the first material annual growth since early 2007.

But experts from the Ernst & Young Item Club, which uses Treasury figures to predict future trends, say the outlook remains gloomy.

Its senior economic advisor Hetal Mehta said: “We believe the current stabilisation in the housing market is a false dawn.

“Price rises largely reflect the acute shortage of available properties, with many homeowners either trapped in negative equity or reluctant to sell.

Limited

“A small number of cash-rich buyers have supported prices, but the supply of these funds is limited. Prices are likely to dip again in the first half of next year.”

Rising unemployment is also likely to limit any improvement, with people delaying buying until their jobs are more secure.

Average house prices are now £139,146 in Birmingham, £131,131 in Walsall, £128,641 in Wolverhampton and £111,970 in Sandwell.

Estate agent Nick Tart, based in Wolverhampton said: “The last four months in particular have been quite productive and we are cautiously optimistic for the future.

“While we have not seen an increase in values, in the West Midlands prices have stabilised.

“Rising unemployment would hinder market recovery, but based on what we have seen recently the prices have stopped falling.”

By Tom Edwards