Who says what? Experts and the 2008 housing climate

In the world of financial and housing markets, predictions of price are always difficult to make. Some might even argue that they are actually impossible to make. After all, no one has ever been able to consistently predict the value of stock markets six months in the future. What experts can do, however, is examine factors inherent in the current climate and attempt to predict what’s going to happen. It is then effectively educated guesswork, but it’s interesting to see what experts genuinely believe nonetheless.

In the UK housing market there have been significant indications of a slowdown after more than a decade of strong sustained growth. The final quarter of 2007 saw a number of successive drops in house prices, with dips in September, October and November, before a surprise 1.3 per cent increase in December. Overall, prices were 0.8 per cent lower at the end of quarter four than they were in quarter three.

Many analysts have been very quick to suggest that the housing market is going to slowdown in the coming year. While this now does seem likely because of a range of factors, it is important to note that there were similar mixed patterns of price rises and falls between July 2004 and June 2005, yet in the long term things continued to grow. Why is it any different this time?

Chris Giles of the Financial Times is one that expects a modest house price fall during 2008, basing his prediction on five fundamentals:

1. The housing market is already over priced and may well have reached a peak.
2. Mortgage approvals will be lower with banks more reluctant to lend.
3. House prices are already declining in more than half of the UK market.
4. The global economy will slow down in the wake of the credit crunch.
5. Mortgage lenders are predicting no change in house prices in 2008, which is close as anyone with such a vested interest could ever come to predicting a drop.

It seems very likely that the global economy will slow during 2008, with the very likely possibility of a recession in America, following on from its own housing market crisis last year. In a controversial report, Merrill Lynch has said that the US recession has already arrived. Despite this, the UK has sound economic fundamentals, with a growing GDP and high employment. According to Martin Ellis, chief economist at the Halifax, these sound fundamentals will ‘support house prices in 2008.’ The likelihood of interest rate cuts will also stem mortgage repayments, and will thus buoy house prices. This goes in tandem with the views of the Royal Institution of Chartered Surveyor’s chief economist Simon Rubinsohn, who said, ‘2008 will prove a difficult year for the housing market, but with falls likely in the base rate, it should be provided with a stable platform.’

Meanwhile, other commentators are less optimistic. David Kuo of the Motley Fool financial website has predicted, ‘that the average price of a house could fall by up to a fifth to £157,290 in 2008 before rising to £185,410 in 2012.’ It’s a view mirrored by Fred Harrison, writing for the Evening Standard. By looking at the long term trends Kuo believes that the current falls are ‘just the beginning of a long term correction.’ If price markets worked as easily as he marks out in his long term graph then a lot of people would see property as the safest long term investment imaginable – but who’s to know until it happens?

If you’re thinking of delving into the housing market in 2008, or you’re looking to remortgage, see the list below for some of the top rates on the market for mortgages available from high street banks. These are all for 2 year fixed rate deals, and with rate cuts anticipated in the market rates may go down further into the year:

Lender	Product	Typical Initial Rate	Rate Thereafter	Minimum Deposit
Natwest	Mortgages	5.49%	7.69%	25%
Alliance and Leicester	Mortgages	5.73%	7.69%	5% (varies with price)
RBS	Mortgages	5.85%	7.69%	25%