Our friends over at Firstrung - the site dedicated to first-time buyers - have come up with a provocative prediction for the housing market in 2008.
Several people have pointed me in the direction of the piece, so I think it's worth taking a closer look at it.
The essence of their argument is this: the stock of property for sale is rising; demand is falling; and this can only lead to one result - significant price falls. They conclude:
"In some ways each sector of the housing market is entering unchartered territory.
"With record numbers of property for sale, a huge reduction in the amount of mortgage products available and overall sentiment fading rapidly, the market will appear to be somewhat chaotic in early 2008."
This would be good news for FTBs, of course, but I'm sorry to say, it's a flawed argument. Here's why.
Demand Down
On the demand side, there is broad agreement among analysts about the current state of play.
Basically, affordability is stretched to the limit, mortgage companies are being meaner with loans, and with prices on the edge or sliding many buyers are reluctant to enter the market.
Various indicators, from different points in the transaction process, are used to measure demand - enquiries to estate agents, mortgage lending, and sales volumes - and all three are on the wane.
Hometrack's latest report shows that enquiries from buyers fell by -6.4 per cent in October, while sales agreed fell by -4.8 per cent.
Recent data from the Bank of England reveals a 20 per cent fall in home purchase approvals from September 2006.
Other surveys support this set of statistics - so on this score, Firstrung share the consensus view.
Supply Soaring?
Where they head off into the wilderness is in their belief that in 2008 there will be "a huge balloon in properties for sale, with the only 'release valve' being vendors slashing their house price expectations drastically."
In support of this they note that the "NAEA are reporting that estate agents are marketing 20 per cent more stock than last year."
There are two problems with this. The first is that supply levels in recent months (the NAEA report they quote is for September) - have been significantly distorted by the introduction of HIPs.
The NAEA report says this about stock levels: "The September 10th launch of HIPs is likely to be one contributor to this as homeowners rushed to enter the market to avoid paying for a Pack.
"Following this date, sellers of larger properties have been hanging back. Feedback revealed an undersupply of new three or more bedroom properties, while the number of one and two bedroom homes on the market has increased."
Sellers Stay Put
The second problem is that most other reports note that the amount of property coming onto the market is falling.RICS, a more authoritative survey than the NAEA's, have reported falling stock levels for the past four months. In September, they said:
"New instructions declined for the fourth consecutive month at the fastest pace since June. Twenty-one per cent more chartered surveyors reported a fall than a rise in new instructions to sell property.
"The stock of unsold property on surveyors' books fell to the lowest level since May 2005. Average stocks per surveyor were 59.4 in September compared to 62.0 in August and are down 11.5 per cent on year ago levels.
"While the real economy remains fundamentally sound, vendors are under no pressure to sell.
"That said, London, whose economy is heavily geared towards the financial services sector, was the only region in the survey to experience a rise in instructions."
This is also the view of Hometrack: their October survey showed a fall in the number of properties listed - not a huge fall (-0.2 per cent), but a long way from a surge.
The only places where stock was rising was Greater London (+3.3 per cent) and the South West (+1.1 per cent). Hometrack's Richard Donnell said:
"We expect further small price falls in the months ahead but these are likely to remain limited as there remains no evidence of any increase in the supply of homes for sale.
"If anything the current uncertainty appears to be resulting in a decline in the numbers of homes coming to the market which is likely to support underlying prices in the coming months."
Repossessions And Rate Rises To Boost Stock?
The bottom line here is that at the moment most sellers are not being squeezed and there is no panic selling. But will this change next year? And if so, what will cause the change?
There are two possibilities:
1. Repossessions: More sub-prime borrowers will hit the skids, homes will be repossessed and the amount of stock on the market will rise.
2. Rate changes: An average of 110,000 borrowers per month are about to come off fixed-rate deals over the next year and many will face new rates up to two percentage points higher than the original deal. This will mean more repossessions, more distressed sales and downward pressure on house prices.
I agree that both are possible. But will they add enough stock to the market to tip it over the edge?
No-one knows for sure, but the CML calculates that repossessions will rise from 30,000 (0.25 per cent of all mortgages) in 2007, to 45,000 (0.38 per cent of all mortgages) in 2008.
That's hardly a flood. Distressed sellers suffering from payment shock will add to the total, but given that the direction of rates is probably downwards (though oil prices might postpone a cut) most will be able to absorb the extra costs.
Transactions To Fall
So next year is more likely to result in a slowdown rather than in freefall. That means buyers will sit tight, sellers will sit tight and transaction numbers will fall.
Hometrack reckon we'll see a whopping 17 per cent fall in transactions - not what you'd expect in a fire sale - while the CML and Knight Frank predict a more modest - but still significant - downturn in activity.
Current mortgage lending figures show a decline in the number of people entering the market, and since most sellers are also buyers it's fair to conclude that in the year to come we'll see stagnation rather than stampede.
Which is why, regional variations aside, I'm much more inclined to agree with Richard Donnell's conclusion than with Firstrung's. Donnell says:
"Despite signs of falling demand and weaker market confidence the reality is that the majority of households simply do not need to sell their home. We estimate that only a quarter of sales each year are by households who actually need to sell.
"While changes in the mortgage market are likely to result in an increase in needs-based sales, we do not believe that there will be sufficient numbers of these households to result in year-on-year falls in the headline rate of house price inflation."