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Where will house prices head in 2008?

Where will house prices head in 2008?

Thursday, 6 December 2007 12:00 AM

At present the housing UK market is perhaps more volatile than at any time in the past decade.

Prices have begun to moderate, with Halifax and Nationwide reporting falls of 1.1 and 0.8 per cent respectively this month; perhaps bringing to an end ten years of virtually continuous growth.

In response, the Bank of England has begun to to cut interest rates, with the base rate down to 5.5 per cent in December - the first cut since August 2005.

But the real question is where will house prices go next?

Is this slight moderation a blip in the otherwise upward march of house prices in the UK? Or, more likely, is this the beginning of a painful price correction across large sections of the UK market, gradually allowing earnings to come back into line with prices?

Here aboutproperty.co.uk attempts to make sense of the divided expert opinion on the future direction of house prices in the UK.

Optimism

Amid all the pessimism and scaremongering there are still some voices predicting relatively robust growth during 2008.

Among these are property investment experts Assetz which predicts house prices will grow by an average of five per cent during the next 12 months.

"While we are currently experiencing a lot of negative sentiment in the property market, this is actually no reason to set the alarm bells ringing. If people look at the fundamentals it is actually very hard to find out what all the fuss is about," said Stuart Law, chief executive of Assetz.

However, there will be continued significant problems for the subprime market according to the organisation.

This view is supported by analysis from SmartNewHomes.com, which argues prices in the market are likely to increase by an average of four per cent.

New build homes are also likely to see an increase in price.

"I believe 2008 will be a more positive year for the new homes market and I predict an average price increase of between two and three per cent for new homes over the next year," stated David Bexon, managing director of SmartNewHomes.

Price increase of around 3.5 per cent are expected by Country Homes.

Realism

However, growth is likely to be substantially below these buoyant estimates.

Interestingly, several leading estate agents all predict growth of between 2.5 and three per cent.

Savills and Knight Frank, for example, both predict growth of three per cent across the country.

"The next 12 months will feel a lot like late 2004 and early 2005; a period when price growth slowed to low single digit levels, and more importantly a period when buyers looking to strike deals were met by over-ambitious vendors," said Knight Frank.

Only slightly less optimistic was Spicerhaart, which predicted growth of two per cent.

"The credit crunch does seem set to continue into 2008. This will produce a subdued environment characterised by low average price growth of around two per cent, although some areas, such as regeneration hotpots, will prove more buoyant," said Steve Cox, operations director of Spicerhaart.

Pessimism

Even these moderate estimates overestimate the robustness of the market according to other experts however.

For example, Nationwide predicts prices in the market will be flat during the next year.

The organisation expects economic growth to slow from three to two per cent during the 2008, while stretched affordability, tighter lending conditions - caused by the credit crunch - and low buy-to-let demand, will combine to cause house prices to stagnate.

Finally, both Experian and the Intermediary Mortgage Lenders Association (IMLA) predict falling prices across large parts of the country.

However, the London market is expected to escape the worst ravages of these downward trends, according to Savills.

So, where will prices head in 2008?

A definitive estimate of future house prices is difficult to calculate, with a number of variables to be considered.

For example home information packs (Hips) will be made compulsory for the whole market on 14th December 2007. The impact of this government scheme could prove integral to the future direction of the market.

Furthermore, the Bank of England will also play a vital role when setting interest rates.

However, industry insiders are leaning heavily toward the possibility of a cut in the new year, perhaps bolstering the market.

"I think they'll drop at five per cent. There will be a cut probably in May and another one mid-year and I think rates will get down to five per cent during 2008 as the economy slows," said Trevor Williams, UK chief economist for Lloyds TSB.

He was joined by a spokesperson for HSBC who said: "We have cuts again in quarter two, quarter three and quarter four, and you get 4.75 by the end of the year."

If this downward trend is proved correct, and given the continued shortage in supply of property in the UK property market, it seems prices are unlikely to fall dramatically.

As such, aboutproperty.co.uk predicts house price growth of between two and three per cent during 2008.