Richard Northedge

Is that a new boom on the far horizon?

Richard Northedge identifies the signals that will tell us when the property slump has passed its lowest point

The real economy has taken only the first step towards recession but the housing market has already clocked up four successive quarters of negative growth. Indeed, house prices have now fallen further in 13 months, according to the Halifax, than they plunged in the whole three years of the 1989-91 crash. And like the rest of the economy, the housing scene is still deteriorating.

But for those who see the glass half full rather than half empty, from now on a series of signs will justify a degree of optimism in the housing market. We’re probably not halfway into the property slump yet, but we should be very soon — and from then on, the market will be coming out of recession rather than going in.

First, by some time in December, average UK home prices will have fallen back to their long-term trend line. They won’t stop falling, of course, and the undershoot below that level could be as sharp as the overshoot was at last year’s peak — suggesting a slide of around 30 per cent by the time the market bottoms and turns back up towards that trend line.

Next, watch for a reduction in the annual rate of fall. The Halifax index showed a 1.3 per cent annual decline in March, nearly 9 per cent by June and more than 13 per cent for September. The fall for 2008 could be 16 per cent and will peak at nearly 20 per cent next spring. After that, prices will still be falling, but less steeply.

And as the rate of decline diminishes, there’s a good chance that by late 2009 there will be a month when prices do not fall at all. A single positive month may seem a rogue figure, but it will be the first rise since this April, and thus worth a headline to cheer the market.

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