HOW will house prices perform in 2008? It is an all-engrossing subject on which everyone is queuing up to give an opinion, with one of the latest views coming from HSBC.

Karen Ward, the bank’s economist, notes that “there is around 30 per cent of the current house price level that cannot be explained”, although, carefully, she does not predict that there will be a fall of this magnitude. The bubble is about to burst, but the extent of the shock that this could cause cannot be predicted.

Hedge fund managers have also been applying their big brains to the prospects for real estate and have become rather more gloomy: an index of their trades in property derivatives indicates that, just a month ago, they were speculating that the market would fall by just 2 per cent. They are now expecting a 7 per cent decline.

However, as Fionnuala Earley, Nationwide’s chief economist, points out, there have not been “any really significant changes in the underlying housing market conditions during the period.” Indeed, the recent indication from the Bank of England that interest rates will be cut in 2008 represents an improvement in the overall outlook.

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Ms Earley continues to believe that the market will be difficult next year but that there will not be a recession. She highlights the continued undersupply of homes – which should provide a support to prices. But, amid the mood of uncertainty, there is an inclination among other commentators to concentrate on the bad news.

The latest house prices surveys from Nationwide and the Land Registry add to the evidence that the slowdown is already under way in most parts of the UK. Nationwide’s statistics show annual growth of 6.9 per cent in November, against 9.7 per cent in October.

The Land Registry – reporting on the state of affairs in October – reveals a fall of 0.6 per cent during the month, but the annual increase in the capital is still running at 14.7 per cent. A year ago, no-one forecast such a stellar performance. Some homeowners may now regret that it will not be sustained into next year. But the outcome from the continuation of this spiral would have been much more painful than even the mostly pessmistic commentator is currently predicting.

TIME TO REFILL THE EMPTIES

The Ninja (no income, no job, no assets) is likely to emerge as the most frequently-used housing market acronym of 2008. It sums up a typical victim of the US sub-prime mortgage scandal: a borrower who should never have been sold a home loan. By contrast, the EDMO (Empty Dwelling Management Order) and the PROD (Public Request to Order Disposal) are among the most obscure of acronyms – which says something about the lack of focus on another disgraceful affair, Britain’s 840,000 empty homes. This scandal bears no comparison with the global-economy threatening sub-prime debacle, although there is one similarity: a lack of official concern about the problem until its consequences can no longer be ignored.

The response to Bricks and Mortar’s report last month on empty homes reveals much anger about the role of some local authorities in the increasing number of properties lying vacant for years. In some cases, the authority is itself the owner of the dilapidated and vandalised home; in others, it turns a blind eye towards the proprietor’s negligence.

Such a home is not only an eyesore and a magnet for crime; it also drags the rest down with it. On pages 12-13 we report on Beverley Platt, whose South London terraced house has lost up to 20 per cent of its value, thanks to the terrible state of the boarded-up house next door. Fortunately, Lewisham, one of the more enlightened councils, has taken out an EDMO, giving it the power not to sell the property but to fix it up and find a tenant. A council that stands by while empty homes in its control, or in private ownership, crumble can be the target of a PROD. The council is compelled to take action – although not immediately.

Bringing empty properties back into use is part of the Government’s plan for three million new dwellings by 2020. However, we will only believe there is a firm commitment to this strategy if EDMO and PROD are rather more familiar terms a year from now.

HAIR TODAY, PRICES UP TOMORROW

Newly chic neighbourhoods that have won a following thanks to the unaffordable prices in areas around them could be among the locations most vulnerable to a slowdown. This means that there is an even greater incentive to spot the qualities that will give a place that is up-and-coming some staying power. The essentials include good schools, transport and restaurants and a vibrant high street, where not every retailer is a household name.

A rising degree of affluence in the area is also a sound indicator. Grandiose home improvement projects are one obvious way to gauge this. But some of those who have made money from moving into now sought-after suburbs rely on density of hairdressers. This suggests that residents have surplus income that they are happy to spend on self-improvement. Another swears by the spread of Pilates studios. What indicator works for you? Let us know.

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