The property market is not a very happy place these days.
Analysts are predicting a 50% freefall in prices over the next three years, and one Liberal Democrat Treasury spokesman claims we are facing a housing depression worse than that of the 1990s.
What is striking about such predictions is how they have gathered momentum in such a short space of time.
All aboard the bandwagon
The first big news about house price decline came in late April, when Nationwide announced that the average house was worth 1% less than a year ago.
After years of astronomical growth, here was evidence that the market had peaked and, human nature being what it is, we immediately began speculating how bad things would get.
Two weeks later, the Royal Institute of Chartered Surveyors warned of a 5% slump by year end. Fast forward a couple of weeks and Halifax were announcing that prices had fallen 2.4% in a single month (May), and by now almost everyone was chipping in with gloomy property market predictions.
Bank of England policymaker David Blanchflower warned that prices could plummet by up to 33%, which stood as the gloomiest prediction for some time. However, one of the nationals took that mantle yesterday when it predicted a fall of almost 50% in the next three years, citing the Halifax index of property price futures.
Things not that bad
So in less than two months we went from a 1% annual correction to predictions of a 50% freefall. If things continue at this rate, our homes will be worthless before Christmas.
Clearly things are not deteriorating at such a rapid rate, and there is an element of confusion - or possibly scare mongering - in the housing market.
As mentioned at the start, we are already hearing talk of a housing crash worse than that of the 1990s. Certainly there are a number of key problems in the housing market at present – expensive mortgages, decreased buyer demand, and general credit crunch-related volatility – that will no doubt push down house prices (as we are already seeing).
But it’s important to remember that today’s wider market conditions bare little resemblance to those of the early 90s. For starters, unemployment is significantly lower, while inflation is at 3%, far lower than the double digit figures endured back then.
These underlying factors will likely prove the difference between a correction and a crash.
