There are many people that may still remember the dark days of the early 1990s, when the aftermath of recession coupled with plummeting house prices resulted in a very poor outlook for most. Many people were plunged into negative equity as house prices plummeted. However, for the past ten years staring from the latter part of the 1990s the housing market has seen property prices rocket, with homeowners finding themselves sitting on a tidy sum of equity.

However, it seems that the housing bubble has now well and truly burst. From the latter part of last year there has been a great deal of speculation with regards to the outlook for house prices. With interest rates having soared over the past couple of years – although they have come back down to some degree now – industry officials began to speculate about what lay in store for the housing market. Many thought at first that house prices would rise by only a small amount this year.

As time has gone on these predictions have changed dramatically. Officials soon began to predict that house prices would not rise at all this year, but would remain flat. In October of last year the Council of Mortgage Lenders predicted that there would be a rise of 1% in house prices this year. However, once again predictions have now changed, and it is now widely predicted that house prices are going to plummet. The CML has predicted that house prices will fall by 7% over the course of the year, and some officials have gone as far as to say that house prices could fall by 20% or more.

Even the housing minister, Caroline Flint, recently inadvertently revealed that the government was expecting house prices to fall between 5 and 10% at best. And recent reports on house price movement seem to back up these predictions, with house prices now lower than they were this time last year. Recent figures from Nationwide Building Society show that in May house prices took the larges fall since the building society started taking records in 1991, with a fall of 2.5% for the month.

Figures show that the average house price is now 4.4% lower than it was this time last year. However, the average house price is still 5% higher than it was this time two years ago, and 10% higher than it was this time three years ago.

One leading economist stated: ‘The plunge in house prices in May is a real shock, and will fuel concern that we are now headed for a sharp correction. The downward pressure on house prices coming from stretched buyer affordability and tight lending conditions is increasingly biting. It now looks more likely than not that house prices will suffer double-digit falls both this year and in 2009. Clearly, a sharp housing-market correction would add to the already serious risks to economic growth, particularly through weighing down on consumer spending.’

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