What do the experts foresee for the housing market in 2004?
As usual, opinion on what will happen to house prices in the coming year is divided. But not one of the market's leading experts is predicting a crash.
Most mainstream opinion is predicting price growth of between 4 and 9 per cent.
Halifax, the UK's biggest mortgage lender, and their rivals, the Nationwide, are the most bullish, predicting growth of 8 and 9 per cent respectively.
The Royal Institution of Chartered Surveyors (RICS) and Hometrack, the property website, foresee price growth of 6 and 4 per cent respectively.
Only Capital Economics, an independent consultancy, have said they believe prices will fall back by 2 per cent by the end of 2004.
With the Office of the Deputy Prime Minister saying that the average value of a house in this country is now £161,365, that could mean around a £10,000 increase in the price of such a property during the next 12 months.
How reliable might these predictions be?
Since most of the experts, including the Halifax, RICS and the Nationwide, got their estimates wrong for 2003, such predictions might be regarded somewhat sceptically.
However, 2003 presented some unusual problems from any forecaster: a year ago, none of us knew whether the UK, together with the United States, was going to be engaged in a protracted war in Iraq, nor what effect this might have on global stability generally, nor the economy at large.
The fact that the war was over relatively speedily, and that interest rates were able to hit historic lows during 2003, meant that the housing market, after something of a pause for breath in the early part of the year, continued to grow at a steady rate from the summer onwards.
So the forecasters might be a little closer to the bull's eye with their predictions for 2004.
Are there any other indicators on the housing market?
Yes, there are: probably most important of all, homeowners and prospective house buyers.
Homeowners are somewhat more cautious than the big lenders about the prospects for price growth in 2004. A recent survey by the Woolwich found that 56 per cent expect prices to remain the same or rise by less than 5 per cent in the coming year.
Almost 1 in 10 homeowners expect property prices to fall.
The Woolwich said that, while homeowners' predictions were similar to the ones made for 2003, the overall rate at which they expect prices to increase had declined.
Why are the predictions for continuing house price growth at a rate higher than inflation?
The Halifax cites low interest rates, low unemployment and good affordability as the principal factors underpinning continued price growth in 2004. Affordability is primarily related to interest rates, which the Halifax thinks will rise to a still affordable 4.5 per cent by the end of 2004.
RICS believes a strong economic recovery and interest rates no higher than 4.25 per cent will support their prediction for housing market growth in 2004. Although less confident about growth, Hometrack believe low interest rates and therefore mortgage affordability will support their 4 per cent prediction. They also believe a pick up in City bonuses will boost the London property market.
The Nationwide's 9 per cent prediction is based on the market carrying "considerable momentum into early 2004" although it predicts higher interest rates will hold back excessive rises.
Alex Bannister of Nationwide said: "We expected affordability constraints and the lack of first-time buyers to dampen the market this year, but consumer confidence has succeeded in driving the market forward."
Are there any factors likely to hold back house price growth?
Interest rates are clearly an important factor. Many recent house buyers may have borrowed 100 per cent of the value of their house, some even more, simply to get on to the housing ladder. And many existing homeowners have re-mortgaged, at record levels, to release the equity in their property for home improvements and other expenditure.
Thus, any increase in the interest rates is going to see monthly re-payments on non-fixed rate mortgages rise, and this could affect a wide range of mortgage holders.
But no one can foresee a repeat of the situation on Black Wednesday in 1992 when interest rates went up 15 per cent in an afternoon, so any incremental increases in 2004 are unlikely to be as painful.
But what remains a worrying phenomenon, and which affects the market as a whole, is the lack of first-time buyers.
House prices are now 5.2 times average earnings, compared with 5 times at the peak of the housing boom in 1989. So, under conventional building society borrowing limits of three times the annual salary, there can be a huge gap in affordability.
In 2003, the number of first-time buyers fell to a record low. The Council of Mortgage Lenders said they accounted for just 26 per cent of all house purchases in November, compared with an average of 40 per cent over the past four years.
And this does not just affect prices at the lower end of the market: if you already own a house and want to move to a larger property, you will not be able to do so if you cannot first find a buyer for your own home.
This lack of first time buyers has been having a ripple effect through the market over the last nine months and it is one of the main reasons Capital Economics predicts house prices will fall by 20 per cent over the next three years.
In a recent report on the housing market Capital Economics said, "Despite the continuing reassurance of some housing market commentators that houses remain affordable despite the rapid price increases, it seems that potential house buyers are voting with their feet and shunning the house market.
"This is because the affordability of a house depends on more than just the initial mortgage interest payment to income ratio, even though this remains undeniably low. First-time buyers being increasingly unable or unwilling to pay the prices asked of them and this is the surest sign yet that a slowdown is underway."
This sounds serious. Are there any other factors at work which continue to push house prices upwards?
The national shortage in the supply of new housing could well keep driving prices forward, at least in the short term.
Last year, there were only 160,000 houses built in England, the lowest number since 1924. The House Builders' Federation says that 55,000 more houses a year are needed to keep up with demand.
In her review of the housing market, published last month in conjunction with the Chancellor's pre-Budget statement, supply, Kate Barker said the shortage of new houses had contributed to rising property prices and called on the Government to act. We can therefore expect some policies to be pushed through next year, but these are unlikely to affect the market for another 18 months to two years.
Which regions look set to gain most during 2004?
The Halifax predicts 2004 will once more be the "Year of the North" for house prices. It also expects strong growth in Scotland and in Wales while prices in London and the South East will increase only modestly.
There remains some dispute about the accuracy of some of the lenders' figures in this respect, however. The Halifax, for instance, still has the bulk of its business in the north, and therefore it bases its statistics on its business figures.
The "average" effect is also misleading: while predicting 9 per cent growth or more in the north and 6 per cent growth in the south, the reality is that the more expensive houses in southern England will continue to inbcrease in value by greater amounts than the generally less expensive homes in the north. All that will happen is that the price gap between the north and south will narrow marginally.