Are we talking down the housing market?

In a word, yes. However, the shrill headlines are far more alarming than the prospects for house prices. The economy will slow next year, but analysts are still forecasting growth of just under 2 per cent. Interest rates now look certain to fall, easing mortgage costs. A repeat of the negative equity blight is unlikely because, despite the concerns about reckless lenders, banks and building societies have been more conservative in managing loan-to-value ratios than they were in the late-1980s.

The anxiety in the business world has not, yet, created a sense of job insecurity. The unemployment rate has held steady at 5.4 per cent. And while economic uncertainty crimps consumer spending, it has not caused the job losses that tend to turn a crisis of confidence into a collapse in house prices.

The housing market looks as though it is heading for a correction, not a crash. The good news is that the value of British homes will not be slashed by a third in the coming year; the bad news is that house prices may fall by 10 per cent. The mortgage lenders and property analysts are these days a chorus of gloom, not of doom. This is, nonetheless, a long way from where we were a year ago. The giddy spirits have gone. Within the last few days, the last few remaining voices of optimism have been snuffed out. Every serious institution reporting on the health of the housing market has now reported falls in prices.

The boom is over. In the past ten years, house prices have trebled. The average cost of a home is about £200,000, which is nearly nine times average earnings. The price-to-income ratio has been stretched almost to breaking point. Either salaries will have to grow at breakneck speed or the cost of borrowing is going to have to be slashed, regardless of inflationary pressures, for the momentum in the market to continue. Neither of those things is going to happen.

The full extent of the problems in America have yet to be revealed. The US economy has a mysterious ability to right itself, particularly in a presidential election year, but a recession in the US would be felt in the UK.

Market sentiment has turned. Foreclosures have risen. Relatively low rents are putting a brake on the buy-to-let business, which is removing one of the other drivers of house price growth.

The impact on the housing market will be uneven. There will be pockets of pain and places of indifference. Speculative investors in city centre flats that are overbuilt, poky and poor quality need to take the prophecies of market misery seriously: a collapse in prices could happen to them. For most people, though, a house is not a short-term investment. They may as well sit out the correction – at home.

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