Falling house prices become a reality

For British homeowners, the key question is no longer whether house prices will fall, but how much they will fall by. Some would argue that we should brace ourselves for a housing crash, while others expect a more subtle adjustment.

What is sure is that house prices are falling. There are a number of contributing factors and in this case it is difficult to find a scapegoat for this worrying trend. For the most part, outside factors such as the global credit crunch are to blame. What is more, the rate of growth that we saw through the 1990s and the first half of this decade was unsustainable and had to come to an end at some point.

The current house price slide is a global trend and Britain is, in fact, not that badly hit. The housing crash in the United States is well documented and, closer to home, prices in countries like Ireland and Spain have slid dramatically in the last year or so.

Looking more closely at the reasons behind the current drop in house prices in Britain, the current credit crunch and the dent in confidence that it has caused looks like the frontrunner. The cost of mortgages is up and gaining approval at the moment is not easy. What is more, there is an air of skittishness that has seen a fall in the number of new buyers entering the housing market. Basically, demand is down and so are prices.

“The key stat from our research is our sales agreed number being 50% lower than this time last year, this is a sign of the difficult market but it also shows that many properties still remain over-priced,” according to internet-based estate agent The House Network.

It is impossible say how much property prices will fall by. However, many property market analysts are predicting a slide of somewhere in the region of 10%. For most British homeowners this should be more than covered than the significant rise in house prices that they have experienced in recent years.

However, for those who have bought in the last year or two, or who have recently released equity from their homes, it may pose a problem. Inevitably, some people will fall into negative equity but it is not expected to be too severe.

Thankfully, it is not all doom and gloom. There is evidence that demand has not fallen off completely.

“We've taken 610 offers on properties so far this year which compares equal to 2007's period of September, October and November. So, the fact is that people are still keen on buying and we're continuously driving the traffic to our properties so the 'problem' lies between buyers' and vendors' valuations,” says the House Network.

Another encouraging fact is that there are options for homeowners who have difficulty keeping up with repayments or have negative equity on their homes. For example, a fall in demand for homes means an increase in demand for rental properties. So, renting the property or even just a room may be a good option for many homeowners until the current economic downturn passes.

As we advised earlier this week, caution and wise spending are a good idea for the coming year.