Recovery - But How Soon?

The last week has, as usual, seen some mixed news about the property market. In between predictions of further falls in house prices have been forecasts of recovery. Mixed news from the Bank of England in its quarterly inflation report may only have added to the uncertainty some could be forgiven for feeling just now.

An example of this lack of clarity has emerged from a poll over house prices held by Headline Property. Asked the question of whether house prices will go on falling through 2008, 79 per cent of property journalists said yes, yet 54 per cent of property professionals said no. Thus expert opinion, it may fairly be said, is somewhat divided.

Perhaps it is best to concentrate on analysis which focuses on the broadest possible picture. In this context, the Bank of England's quarterly inflation report may give the best clue as to what lies ahead for the property market. The news was not as good as some hoped, with a cut as low as 4.5 per cent being regarded as problematic given the danger of rising inflation. But the report also indicated that maintaining the present 5.25 per cent rate would cause an undershoot of the target, hence at least one more cut may be expected.

Even the cuts so far, however, are destined to make the necessary impact, according to some industry experts, the only disagreement being when. This week builders Manning Stainton announced that at a working breakfast it had held in Leicestershire the Royal Bank of Scotland strategist Neil Parker had forecast a recovery in the market to start in the later part of this year.

Mr Parker's view was that there was no doubt that the economy and housing market had taken a hit in the wake of the credit crunch and still faced difficulties now. But while there would not be an immediate recovery, there would be the start of one by the end of this year due to the loosening of the monetary bonds being carried out both by the Bank of England and chancellor Alistair Darling.

He said: "The Bank of England's interest rate setting body - the monetary policy committee - have already begun the process of reducing interest rates to support growth".

Yet while this is undoubtedly an optimistic longer-term view of the impact of rate cuts, it may in fact be less so than the latest data warrants.

Such information has come forth from the National Association of Estate Agents (NAEA), which has announced that in January its members found that housebuyers were up 11 per cent, stock rose by nine per cent and average sales per agent increased to eight from December's figure of five.

Commenting on the findings, NEAE chief executive Peter Bolton King said: "I am confident that we have just started to see the benefit of first interest rate cut in December and the latest quarter percent decrease in February will further help boost the confidence of all buyers and particularly first-time buyers."

If the improvement recorded in January by the NAEA continues, it may indeed give a solid indication of a market recovery. Some of this may be a result of improved affordability through dips in prices and lower mortgage rates, but that in turn may provide the catalyst for a market that starts growing again in earnest well before the end of this year.

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