Forecasters call the bottom of the house price slump

The increasing stretch of stable house prices is leading forecasters to call the bottom of the slump.

The Nationwide late last month tentatively said it may be time to think the unthinkable that house prices may exit 2009 higher than they entered it.

Last week much was made of the RICS saying it expected house prices to be higher at the end of 2009 than at the beginning. Wisely, there were heavy caveats and warnings over the fragility of the market.

Today we see consultants CEBR present a report that forecasts house prices to dip 3% this year before starting to rise gently next year and increase slowly but surely for the next three years. Admittedly prices in 2013 will still be 11% or so down on the peak in 2007.

And even the battered house builders are feeling rather more bullish after the hefty beatings they have taken over the past 18 months. Pete Redfern, the man in charge at Taylor Wimpey, is of the view that house prices will not fall again.

Not everyone is expecting growth to take hold over the next 12 months, the National Housing Federation came out with a slightly different take. It expects house prices to continue to fall this year and in 2010. But it sees strong growth in prices thereafter, with growth averaging more than 7% between 2012 and 2014.

And there remain those that are still glum about the prospects for house price growth, such as Capital Economics.

The futures market is also pricing in stiff falls for the next couple of years, as the figures from Tradition Future HPI show. Although there are clear signs here that sentiment has shifted towards a less pessimistic view.

So what are we to make of this? Are we set to see a return soon in house price inflation?

Firstly it is worth noting that rising prices will not be universally welcomed. While house price inflation may not strictly be a zero-sum game, to those excluded from the market in recent years it must feel like it is.

The housing have-not-but-wants will no doubt greet the changing market sentiment with a mixture of annoyance and pooh-poohing.

But the bulk of opinion formers, including the Government I suspect, which are broadly tied to house prices marching ever upward in an orderly fashion, will most likely be relieved and adjourn to their holidays in finer spirit.

On balance the more bullish forecasts will add to the mood music that is bolstering sentiment in the market and this will help support any uplift there may be in prices and the housing market generally.

But while sentiment may have the effect of shading the movement of house prices up or down, it is unlikely to govern the broad direction.

It is, of course, possible that we have seen the majority of the market correction and that broadly house prices will start to stabilise and return to an upward path next year.

There are however serious threats. The CEBR forecast recognises that rising unemployment and weak wage growth might prompt a second wave of house price falls.

But its consultants view is that house price have fallen so much that further significant falls are unlikely.

This perhaps is a brave call, given we have yet to see the effects of unemployment on the housing market.

As the analysis presented by RICS last week suggested, prices are in part being supported by the unwillingness of potential vendors to put their homes on the market. This prop could be kicked away if greater numbers of households become financially stressed through unemployment or rising mortgage rates.

Should future economic woes lead to forced selling, the standoff between buyers and sellers stabilising the market may be broken and lead to very unpredictable movement in house prices.

However improved the current economic climate may appear to be it has been and remains hugely influenced by two factors.

Firstly the economy has received and continues to receive an unprecedented level of fiscal and monetary support.

Secondly we are in the final year of a Government, which is normally a period when the incumbent administration throws all it can at the economy to jolly the electorate.

By June 4 next year at the very latest we will have a new Government. Whichever party forms that Government it is heavy odds on that we will see policies that are far less "voter" friendly.

How entrenched will any housing market recovery be by then?

No matter how much improvement there has been in sentiment, it is hard not to conclude that the degree of uncertainty surrounding the housing market is so great that any medium-term forecast relating to prices is pretty much pointless.

But forecasters must forecast. That is what they do.

And, as mentioned many a time before, the key to getting the most out of forecasts, particularly in times of turbulence, is to look more closely at what goes into the forecast and the assumptions made than at what comes out.