Does Short-term Dip Mean Long Term Cuts? By Jim Barnaby At Isnare.com Ezine Articles

The UK housing market is in a curious state in many ways. After years of high inflation driven by a strong economy and a shortfall in demand, the market has seen a slowdown since the base rate hit 5.75 per cent and the credit crunch introduced a wave of economic uncertainty.

Evidence of the slowdown in the housing market has moved from a trickle to a flood, with predictions of low, zero or even negative growth next year, while property website Hometrack recorded a 0.1 per cent fall in prices across England and Wales in October.

This month's Hometrack figures doubled that fall, with the midlands, the weakest growth area for many months, seeing the highest regional fall at 0.3 per cent. But London, for so long the blazing inferno at the heart of a hot market, is also seeing notable falls. Greater London in its entirety saw a 0.2 per cent fall, while central London was down 0.5 per cent, the last of these figures being seen as a direct result of the stock market turbulence caused by the credit crunch. Savills predicted earlier this month that City workers would only invest £2 billion in real estate next year, compared to £5.5 billion in this, Bloomberg reported.

While the central London trend may be disproportionately affected by dwindling City bonuses, a wider trend could be developing that sees the expectation of a market slump actually leading into one, Global Insight economist Howard Archer told the news agency, saying: "Growing speculation that the housing market could see a sharp correction over the coming months may also increasingly deter potential house buyers.''

Hometrack's own view, expressed by director of research Richard Donnell, was that: "It is hard to see the catalyst for any short-term turnaround in market confidence other than interest- rate-cuts early in the new year."

Those rate cuts, of course, are widely expected, with the Bank of England's hint to that effect coming in this month's inflation report. Nationwide has predicted as many as three by October 2008, which could re-ignite the market. As such, it could be that the slowdown is a short-term feature, whether one regards this as a necessary correction or the consequence of misfortune.

It is in the context of long-term expectations that issues such as supply remain. If the housing market will start picking up again in time, those issues will return. For those looking to meet the challenge of ensuring government targets for house building are met by 2020, the current dip in demand, which has led to less houses being built, means little in the light of the bigger picture.

"The current decline in construction orders will not necessarily affect the housing targets for 2020 at all," said John Slaughter, director of external affairs for the Home Builders Federation. He stated that the market was a cyclical entity.

Given the significance of the state of the housing market in the fortunes of residential buyers and property investors alike, this point is important. Any cut in housing targets could mean an even greater shortfall than might otherwise be the case once the factors which have caused the slowdown in the market cease to have an impact. Instead, therefore, one may expect that there will be no change in the task given to builders, which will ensure both the residential and buy-to-let markets are well supplied in the future.

As a result, Mr Slaughter commented: "The long-term market fundamentals, which is what we primarily look at, would certainly not suggest that there's any case for reducing the government's housing targets at all."

In today's world Property investment is an excellent investment option especially investment in UK

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