A set of figures released on Wednesday 30th August by the Land Registry seemed to contradict much of what we have been reading in recent months about house prices falling by record amounts. In this first Viewpoint article, we take a look at what's been going on and try to work out what direction the housing market is going to take next.

Firstly, the case for a rising market, put forward by the land registry and several London based estate agents:

At the start of the month the Land Registry, home of government property records, announced that the average price of a home in the UK had risen above £100,000 for the first time. A rise of 14.5% in the three months from June saw the average price jump to £103,115 from £90,068 at the same point just one year ago.

Even though these figures were calculated along the same lines as all previous figures from the Land Registry, excluding all properties sold for under £10,000 and over £1 million (a total of 293 properties), this was still the largest rise since the Land Registry records began in 1995.

Over the past year, growth in the capital was particularly strong - a year on year rise of nearly 25%, with the southeast not far behind with annual growth of around 20%. If you find that surprising you'll be even more shocked to know that the average price of a house in London will soon top the £200,000 mark. Between April and June this year alone rose a massive 8.3% to £193,000.

To seemingly compound the hard evidence of a booming market there was also a 6.5% increase in the number of homes bought and sold in the same period - from 218,393 to 232,548.

Meanwhile, a spokesperson for a leading London agency said to expect an autumn rush as buyers expect lower prices, which may again force up property prices in the capital. At the same time, David Thompson of Ludlow Thompson claims rental prices in London have risen by as much as 20% in the last six months.

But that is only half the story.

Despite the seemingly unquestionable evidence of a year-on-year rise there are indications of a cooling market. The land registry's quoted 14.5% increase on the figures for the period April-June 1999, is actually down on the figure against figures for the overall annual increase for the year to June, placed at 15.2%. And this figure in itself far less than the 16.8% rise for the year to March 2000.

Since - and before - the Land Registry's reports on the massive increases in house prices, a number of mortgage lenders have contradicted the findings, suggesting falling house prices for the same period. For example figures from the Halifax suggested falls of 2.5% in London and other heavy falls in the Southeast.

These figures have also been backed up by those recently released by the Royal Institute of Chartered Surveyors and several other leading UK mortgage lenders. They agree that the year or so of sustained growth has now ended and that prices and lending are slowly rescinding. The Bank of England has also entered the foray insisting that mortgage lending had fallen from 2.8 billion in July from 3.8 billion last February.

Further gloomy news followed for those looking to sell at the moment, with the NAEA warning vendors to "be realistic of your expectations," claiming that recent figures are actually more a reflection of prices three months ago, with further falls still to come.

This is not an easy question to answer, with so much conflicting evidence and differing viewpoints. Since many economic events work in cycles, it can be helpful to look back and compare current events with what has gone before:

There have been three booms in the last 30 years. In each the price inflation has reached 30% a year and seen a cycle of boom and bust with sharp falls immediately following.

The most recent, that of the late 80's, had slightly differing conditions behind the market growth. Earnings were up by up to five times and regulatory changes meant we could all borrow far more money than we can now. This had the after effect of leaving many people with negative equity and the country in a very unhealthy state. A situation nobody wishes to see again.

So, if history suggests it will all end in tears, can we expect anything different this time round?

Well, hopefully. There are a number of reasons why things may be different in the 21st century:

Firstly, some of past housing market cycles have been powered by exceptional forces that are absent this time round. The situation with so many people suffering negative equity in the early nineties has led to a far more cautious approach to both lending and homeownership.

Furthermore, increased competition between mortgage lenders and lower interest rates has led to less money being spent by first time buyers on their mortgages and consequently their initial mortgage payments comprise less than 15 percent of their income, down from 25 percent at the height of the previous boom in 1990.

Government taxes are also causing differing effects from previous boom. Stamp duty is higher on more expensive properties and the phasing out of tax relief on mortgages has helped dampen demand for property.

The second major difference this time round is the fact we have stable, low inflation. Properties, through their solid bricks and mortar, are often seen as a way to protect money from the spiralling prices of inflation. At present the public appears confident that the governments target of 2.5% is realistic, so there is no need to rush to buy property to safe guard their money and consequently create demand in the market.

What we are seeing is a more muted market than in the past, rather than the dramatic swings in house prices as witnessed in the 80s. The current housing price slowdown could mean that the economy is headed for a "soft landing," where growth slows without driving the economy into recession.

We appear to be riding a smooth curve of sustained growth rather than the roller coaster boom and bust of the past. However, whilst the housing sector appears to be slowing in some areas, it is generally still fairly strong. And while other areas of the economy are also doing well, the MPC of the Bank of England is unlikely to reduce interest rates, and a raise may still be necessary the keep the reigns tight. A situation we should all welcome if it avoids the recessions of the past, even if it does increase your mortgage repayments.

However, in our view, while the market does appear to be slowing, this is nothing more than a correction, much as has happened in the stock market. In the long term, the market will continue to grow while demand outstrips supply, though this growth may perhaps not be so aggressive in the near future. As John White, chief executive of the house builder Persimmon, said: "There's still a desire for people to improve their lot, and a shortage of supply. I can't see how prices can't continue to go up steadily."

According to the figures, house price trends can vary wildly simply across a street, let alone across different regions in the country. If this is the case, as it certainly seems to be, then we would advise you take little notice of any of the figures so regularly released. Instead, take the time to investigate a little closer the situation in your local area. It will probably pay high dividends.

The most important thing in deciding to buy is often not the state of the housing market but your own personal circumstances. If you are in a situation where you feel that the time is right, then why not go for it? As long as you do your homework on the area and the property itself, don't overstretch yourself financially and make your purchase for the long term rather than a quick buck, then there is no reason to fear taking the plunge.

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