Where are house prices heading in 2006?

In 2005 the housing market returned to a semblance of normality after five years of nearly unprecedented price growth.

But what will happen to house prices in 2006?

Will it be a case of steady as she goes or will property values take a tumble?

Five predictions for 2006 are summarised below.

Halifax

Nationwide

Hometrack

Capital Economics

Royal Institution of Chartered Surveyors (Rics)

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Halifax, the UK's biggest mortgage lender:

Will prices rise or fall during the next twelve months? Rise.

By how much? 3%

2006 overview: The bank says housing market fundamentals are "sound" but price growth is likely to remain below the long-term trend in 2006. Overall, house prices will not rise as fast as average wages, which should make property more affordable. Robust growth in average earnings - predicted to be close to 5% - as well as cuts in interest rates will combine to prop-up the housing market and prevent any slide in values.

Did it get it right in 2005? No, it predicted a small fall in prices. The market proved a little more robust than predicted due to high levels of employment and continued economic growth.

Regional winners and losers? The north/south divide will narrow further during 2006, the bank predicts. Modest price rises in Scotland and Northern Ireland are predicted while prices should stagnate in the south east and east Anglia.

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Nationwide, UK's biggest building society:

Will prices rise or fall during the next twelve months? Rise.

By how much? By up to 3%, the society predicts.

2006 overview: The Nationwide reckons the UK economy will recover next year and as a result there will not be a collapse in house prices. Overall, the society says it is "cautiously optimistic" about prices. But the society warned that year-on-year house prices may fall in early 2006, compared to strong growth in early 2005. The group added that it thought buyers and sellers were now accustomed to lower levels of house price inflation and as a result it was becoming easier for both parties to agree sales.

What is its forecasting track record? Pretty good, of late. The Nationwide predicted annual UK house price inflation would be about 2% in 2005. In November, the society said annual house price inflation was 2.4%. However, looking further back to the boom years between 1999 and 2004, house price inflation often exceeded the Nationwide's growth predictions.

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Hometrack, a property research company

Will prices rise or fall during the next twelve months? Rise.

HOMETRACK EXPLAINED A guide to current prices Data is collected from 3,500 estate agent offices from all 2,200 postcode districts in England and Wales The estate agents report whether asking prices are rising or falling Housing market surveys explained in full

2006 overview: Prices should rise by 1% during the course of 2006. The group said the market was being starved of first-time buyers as people in their twenties and even thirties simply do not earn enough to be able to afford their own home. Hometrack looked further into the future than the other forecasters. The group predicted that prices would increase by an average of 2.1% a year over the next three years.

"These low levels of house price growth will result in a steady re-alignment of household incomes and house prices to more sustainable levels," Richard Donnell, Hometrack's director of research, said.

What is its forecasting track record? Hometrack has not been around very long to have much of a forecasting track record. Last year, though, the group said prices would remain unchanged, a prediction which seems only slightly wide of the mark as prices have fallen 1.57%, by its own estimates, during the year.

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Capital Economics, independent economic research company

Will prices rise or fall over the next twelve months? Fall.

By how much? By 5%.

Capital Economics are predicting price falls

2006 overview:Capital Economics believes that the UK housing market is still "fundamentally overvalued", despite price growth moderating in 2005. The group argues that house prices have raced so far ahead of wages as to make purchasing property unaffordable for many would-be first time buyers. Dangers lie all around for the housing market, the group argues. For example, a deterioration in the UK economy could lead to sharp house price falls as people lose their jobs and struggle to keep up with their mortgage repayments.

What is its forecasting track record? Capital Economics is a long-standing housing market sceptic. The group has been predicting a sharp fall in house prices, starting in late 2004. Last year, they said prices would fall 7% as a prelude to a 20% decrease over three years. So far their predictions have not been proved right but Capital Economics is far from alone in saying that house prices are at an unsustainably high level.

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Royal Institution of Chartered Surveyors, an industry body

Will prices rise or fall over the next twelve months? Rise.

By how much? By 4%. It expects steady growth during both 2006 and 2007.

2006 overview: RICS said it expected prices to rise on the back of an increasing number of sales. The number of properties being sold fell dramatically between late 2004 and the first half of 2005. RICS said this trend had now halted and that it thought mortgage approvals - a key indicator of housing market activity to rise from a five year low of 1.127m in 2005 to reach 1.336m in 2006.

What is its forecasting track record?Last year the surveyors' industry body called the market right, saying prices would rise by about 3%. RICS surveys its members to find what they think about the future direction of house prices. This can mean that it is early in flagging up moves in house prices.

The material is for general information only and does not constitute investment, tax, legal or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for your own particular situation.