Ed Stansfield (left) and Martin Ellis
The UK's biggest mortgage lender, the Halifax, has said that house prices fell by 0.4% in November, and will drop by 2% in 2005. It is the latest in a growing line of surveys that show demand is weakening and sales are falling. Is the UK house-price boom definitely over?
Martin Ellis, chief economist at the Halifax
Housing market fundamentals are sound.
The economy's strength, the high level of employment and low unemployment, together with the lowest interest rates since the 1950s, have been key factors behind the recent sharp rise in house prices.
Sound economic fundamentals will continue to support housing demand over the coming year and mean that the housing market will remain in good health.
Past major housing market downturns have all been caused by a combination of economic recession, steeply rising unemployment and significant rises in interest rates directed at controlling retail price inflation.
Over the medium term, we expect the housing market to enjoy a period of stability
There is very little likelihood of a similar combination occurring over either the short or medium term; UK plc is in good shape.
Over the medium term, we expect the housing market to enjoy a period of stability.
House prices are forecast to rise at a modest rate following next year's small decline.
Earnings are likely to increase more rapidly than house prices, leading the ratio of house prices to earnings to decline from its current historically high level.
The shape of the market will change with better affordability meaning that more first-time buyers will be able to purchase a home.
The return of first-time buyers, along with generally good economic conditions in the UK, will generate a steady improvement in housing market activity beyond 2005.
The signs that overall economic growth has eased since the summer and that the housing market has weakened have alleviated the pressure on the Bank to raise rates further.
Ed Stansfield, property economist at Capital Economics
Despite the rather surprising rise in average house prices reported by the Nationwide earlier this week, the overwhelming weight of evidence suggests that house prices are now falling, albeit to date, only at a modest pace.
What we are witnessing is the start of a prolonged period of falling house prices
We believe that the fear of being left out of the boom that characterized the rapid rates of house price growth and high levels of activity in the early part of the year has been replaced by a fear of overpaying a fear that is being borne out by the majority of recent housing market statistics.
With housing market valuations now so stretched, we believe that recent falls in house prices are likely to develop their own momentum in the months ahead and that what we are witnessing is the start of a prolonged period of falling house prices.
Although the traditionally busy New Year period could yet bring some relief to the market, any upturn is likely to prove both modest and temporary.
Today's figures suggest that our forecast of a 20% peak-to-trough drop in average house prices, which will put the market onto a more sustainable footing, remains on track.