House Price Crash?! Soft Landing More Likely

Forecasts of doom and gloom regarding the UK property market have been plentiful recently with many pundits predicting that the UK property market and the buy-to-let market could be hit hard. However, these views are not universally shared.

Only today, another gloomy prediction about the UK property market has emerged from economic consultancy Capital Economics which states that Britain is about to see a two year drop in property prices, with a five percent fall this year and an eight percent decline in 2009.

Such pessimism has been countered by CB Richard Ellis which predicts a soft landing for the UK property market with a marginal rise in property prices of three percent this year.

Head of residential research Jennet Siebrits said: "This is not a repeat of the 1990s crash, as housing equity and employment rates are at an all-time high and interest rates remain low," reports the Daily Telegraph.

"With the benign economic backdrop and unique nature of the property market, we do not envisage forced sales and repossessions spiralling. Instead, we expect a think market in 2008 with lower levels of transactions," she added.

The company's synopsis is straightforward: the property market goes through cycles and after a successful one it is now going through a gradual and inevitable correction, with only those over-reacting predicting it will develop into a crash. Or, as the Guardian reported Ms Siebrits as saying: "Don't panic, it's a slowdown, not a crash."

In addition to this, Ms Siebrits told the paper, buy-to-let's future was also good, because of the long-term view most investors take. She said: "A mass exodus is unlikely as these investors tend to have a longer-term view of the market. Within ten years of the 1990s crash, prices were 30 per cent higher than the peak of boom."

Of course, such views had already been expressed this week by Ian Perry of the Royal Institution of Chartered Surveyors (Rics), who said that the present underlying economic scene was "vastly different" to that of the early 1990's. "Supply would have to loosen considerably before prices experience a significant dip," he added.

Yet the context of the comments was that of Rics reporting the highest majority of surveyors reporting a fall in property prices over those reporting a rise last month since 1992. This fact could be interpreted as a clear sign of bad times ahead; more so if Mr Perry's words are ignored or if one chooses to put more stress on his warning that there would be problems ahead if the Bank of England did not cut interest rates.

With such a big divergence in views it really does depend how one sees the bigger picture for the future of the property market over the next 12 to 24 months. However, with news coming out that the Bank of England are set to drop interest rates again at the beginning of February means that many home owners and property investors might have something to feel positive about.

Our own view is if interest rates are cut by half a percent or more during 2008, this should help to soften the blow to the property market and gradually confidence should return to buyers which means demand for property should increase and a soft landing rather than a property market crash is the most likely scenario.