By Ian Pollock
Personal finance reporter, BBC News
The new year may bring cheer to those priced out of the market
House prices could be even more of a talking point than usual in 2008.
For the first time since 1995, this could be a year in which property prices actually fall.
However, that is not what most experts are predicting.
On the whole they think that prices will be flat, or may rise slightly over the next 12 months.
But the plain fact is that prices have taken a sudden downturn since the summer.
And that opens up the possibility of further falls in the coming months.
At the start of 2007, all commentators were expecting that the UK's house price boom would finally run out of steam.
Pundits were expecting successive interest rate rises from the Bank of England to have their effect at last - and for more and more people to become priced out of the market.
In fact, this process took rather longer to play out than expected.
It was only over the summer that annual house price inflation started to fall.
Capital Economics, the consultancy led by one of the City's leading economists, Roger Bootle, has long been predicting that the UK house price boom would come to an end.
This past year, it thought that prices would rise by only 3.5%, and as it turns out, it could be on target.
But citing a slowing economy, expensive prices, stricter lending and more mortgage defaults, Capital Economics has revised its predictions for 2008 downwards.
"In view of the recent news flow from the market, coupled with growing evidence that the economy is on the verge of a sustained slowdown, we have cut our forecasts," said the consultancy's Ed Stansfield.
"We expect house prices to fall 5% next year and by a further 8% in 2009, wiping out the gains of the last 18 months.
"The long overdue housing market correction now appears to be underway," he added.
Two of the most widely-followed measures of house price movements are the monthly surveys published by the two biggest lenders, the Halifax (part of the HBOS banking group) and the Nationwide building society
The Nationwide forecasts that annual house price inflation will have dwindled to nil by the end of 2008, describing this as a "significant slowdown".
Only Scotland, in its view, will still experience rising prices, while the recent spectacular boom in Northern Ireland will crash to a halt, with prices falling.
The other big lender, the Halifax, also believes that property inflation will be flat by the end of the coming year.
Interest rates now seem on a new downward curve and may fall to as low as 5% in the Halifax's estimate.
But it thinks the market has yet to feel the full effect of the previous increases and this will manifest itself, it says, in a 15% drop in sales across England and Wales.
The mortgage tap
Two months ago, the Council of Mortgage lenders forecast a mere 1% rise in house prices over the course of 2008.
Since then, it has become very worried about what has become known as the credit crunch - the unwillingness of banks to lend to each other in the wake of the sub-prime mortgage crisis in the US.
Its most high-profile victim so far has been the Northern Rock, along with a number of very small sub-prime lenders in the UK.
But the CML is concerned that the mortgage tap may simply be turned off in the UK if banks can no longer borrow from each other to lend on as mortgages.
The figures are stark.
The industry expects demand from the public for another £90bn or so in new mortgages this coming year.
Only £60bn or so can be satisfied by lending the money that people actually save with banks and building societies.
So, in theory, the rest will have to be borrowed from other financial institutions.
But what if they are unwilling to lend?
"It is a fast-changing environment," said Bernard Clarke of the CML.
"There has been lots of action by central banks to kick-start the wholesale funding market, and banks may release funds in the New Year that they are currently hoarding."
That is the optimistic scenario.
But if the freeze in lending between financial institutions continues, then there could be a real shortage of mortgage money in 2008, with a consequent slump in house sales.
With the authorities apparently alert to the danger that a freeze in lending would pose to the wider economy, and not just the housing market, the Royal Institution of Chartered Surveyors (Rics) is one of the many bodies predicting further cuts in interest rates to 5%.
In its view, that should offset any short-term downturn in sales and prices, and will eventually lead to prices being flat over the course of the next 12 months.
"2008 will prove a difficult year for the housing market, but with falls likely in the base rate, the housing market should be provided with a stable platform," said the Rics chief economist Simon Rubinsohn.
"The effect of the credit crunch will dissipate slowly, meaning that those seeking to obtain finance in the first half of 2008 may struggle.
John Charcol -2%
Capital Economics -5%
"However, the employment picture should remain firm throughout the year, helping to prevent significant numbers of repossessions and the subsequent influx of supply into the market," he added.
A year of two halves is also forecast by Ray Boulger, of big mortgage broker John Charcol, who suggests prices will end the year 2% lower than they started.
He thinks the first half of the year will be particularly tough, with sales continuing to slump.
"I predict the net result is that house prices will fall a little in the first half of the year - by up to 5%," he said.
"But by June, the fall in bank rate and an easing of the liquidity squeeze will stabilise the market, although it will still be very difficult for sub-prime borrowers.
"In the second half of the year, transaction levels will improve and prices will partly recover, ending the year down 2%," he added.