The Future Of House Prices

What does the future hold for house prices? We put experts' predictions through their paces.

What's going to happen to house prices? It's a question on many peoples' lips and there are lots of different views out there.

Over the past two weeks alone, eight press releases on house prices arrived in The Motley Fool's inbox, each claiming to have the answer. The only problem is, they can't agree...

So we figured it was high time we rounded up some of these predictions and put them through their paces. (The predictions below are paraphrases, not direct quotes.)

THE LENDER:

Nationwide

Prediction: We predict that by the end of the year, annual house price growth will have slowed from 9.7% to around 6.5%. During 2008, we think that house price growth will be much slower and by the end of the year prices will be at similar levels as at the end of 2007 (so the annual rate will have slowed to 0%).

We would expect to see some falls in prices some months and rises in others. Having said that, we do not believe there will be a house price crash.

Reasons: We predict prices will slow due to the impact of higher interest rates, poor affordability dampening demand and a change in expectations about future house price growth. However, prices will be supported by pent-up demand from first-time buyers and a shortage in the supply of housing to meet the needs of UK's rapidly growing population.

My view: Nationwide is sitting on the fence with this prediction. If prices are the same at the end of 2007 as they are at the end of 2008, then prices will have fallen in real terms.

I am also sceptical about the reasons given. On the one hand, Nationwide predicts demand will be dampened because property prices are not affordable. But on the other hand, it argues prices will be supported by pent-up demand from first-time buyers the people who are most likely to struggle to afford to buy. Hmm.......

THE PROPERTY VALUER:

Hometrack

Prediction: The annual rate of house price inflation will slow to 1% by the end of 2008, but the greatest casualty of the current slowdown will be the number of property transactions, which will fall by 17% over the year. Indeed, the next 12 to 18 months will be characterised by a general lack of housing for sale which will support prices overall, but will result in much greater price volatility within local housing markets.

Reasons: The pace of house price rises will slow because of falling demand and weaker market confidence. But we do not anticipate widespread house price falls. This is due to what we see as some major supply side constraints. Firstly, there is little evidence of any major increase in the supply of homes coming to the market for sale and this is acting as a support to prices. Secondly, the reality of the UK housing market is that the majority of households simply do not need to sell their home. We estimate that only a quarter of sales each year are by households who actually need to sell.

My view: If prices start to fall significantly, some homeowners may panic and decide to sell up, even though, as Hometrack puts it, they do not need to. But overall, this is one of the best predictions I have seen. It suggests that buying and selling property will be less attractive to many people in 2008, and I agree with this. It also makes a keen distinction between what will happen to prices on a national and local level, which I believe is important. And finally, it emphasises that, for most people, their property is not just an investment they buy and sell to make money it is their home.

THE PROPERTY INVESTMENT ADVISER:

Assetz

Prediction: House prices will increase by 5% in 2008 and rents will rise by 10%.

Reasons: With an anticipated period of lower interest rates and the credit crunch now receding, we think 5% growth is realistic, given the continuing supply/demand imbalance. Supply constraints and buyers' uncertainty about the housing market also means next year is likely to see an increase in the demand for rental accommodation from first-time buyers and immigrants -- hence the rise in rents. So we predict 2008 will be a very prosperous year for the buy-to-let investor.

My view: Assetz could be right about house prices, but only if interest rates fall significantly and the effects of the credit crunch recede dramatically both of which look unlikely in the near future at least. I do agree, however, that there is likely be an increase in demand for rental accommodation from immigrants and first-time buyers who do not want to get on the ladder in an uncertain market. But rising rents may not provide adequate compensation for many landlords, already suffering the cost of five interest rate hikes, and faced with little capital growth in their investment. In such an uncertain market, I actually think many investors could be tempted to cut their losses and sell up. Overall, an optimistic prediction from a company that is more likely to prosper when the property market is buoyant.

Up or Down? 

So what's the conclusion of all this? Will prices go up or down?

You've heard the experts, for what they're worth, you've read my responses and you've no doubt got your own views and opinions. So rather than forcing you to read another article that ends up saying the opposite of the one you've just read that told you the opposite of the one you read before that, I've decided to throw that question back to you. What's your own prediction for the year ahead? If you're brave enough, and fancy a bit of a debate, why not join our discussion boards and put your own view across.

And finally, if you are looking to buy this year, it's absolutely vital you shop around for a good mortgage deal. Then, whatever happens to prices, you can at least rest assured you aren't paying over the odds for your mortgage.

>Visit our Mortgage Service to compare deals and get professional, fee-free mortgage advice.