Henry Pryor on Property

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It's nine months since queues started to form outside branches of Northern Rock. The first run on a UK bank in over 100 years is now regarded as the first tangible sign that we were in trouble and was about the first time that many people had heard the phrase 'credit crunch'. If I had a pound for every time that term has been used since!

Since then interest rates have been reduced by a full percentage point, we have seen lenders reduce their mortgage products by nearly 50% and some have even stopped lending and household names like Bradford & Bingley have to go back to their shareholders cap in hand - not to mention the Bank of England (you and me) throw the Rock a £30bn lifeline and the banks in general given a £50bn hand out to try and get them lending again.

According to some surveys, house prices have started to fall with the over quoted Halifax index down 2.4% last month alone. House sales in some areas have dropped by as much as 70% and the wheels have even started to come off the buy-to-let market. But where will we go from here?

Many ways to say 'I don't know'.

I read a leader yesterday written by a respected estate agent in East Anglia who had found 500 words to use instead on the three he could have; 'I don't know'. Frankly, it's not a surprise that he doesn't want to even hazard a guess.

He knows that if he tells you what he has nightmares about that no-one will want to instruct him to market their house, and I'm sure he's right. You usually have to be pretty drunk to think it's fun to sit down with a pessimist and find him good company.

The newspapers are full of doom and gloom one day (The Guardian this week ran the headline 'Traders predict house prices will fall by 50% in four years') and that the whole thing is just your own bad dream (The Daily Express on 20th May with the priceless 'HOUSE Prices Won't Crash'). But what is really going to happen?

What the City says.

City traders (well those who still have a job!) are betting against what are called 'Property Futures'. In fact this is a mix of numbers and opinions and 'what-ifs' all cooked up by a financial Gordon Ramsey leaving you to F and blind at the conclusions they come to.

They are saying that values will be down by 50% in real terms over the next 3 years and will take until 2017 to recover to today's values. Imagine that! If it's true then houses would be worth what they were in 2001.

In 1997 the average house was worth £70,000. Today, if you can find an average house then it's supposed to be worth £194,000. Electronic bookmakers, like IG Index, reckon that UK house prices will be down 11.4% by September and Sporting Index who match punters (and therefore aren't gambling their own money) are quoting a drop of 22% by next March and a full 28% by December 2010.

Stop people in the street and you'll get a view. City economists, mortgage brokers, beauticians and undertakers all have a view if you push them, and most disagree and that's the point - the value of anything can only be determined when there's a market.

Today, less than 1-in-5 homes are selling, which makes most homes 'worthless' to all intents and purposes - they either can't find a ready, willing and able buyer or they are not serious sellers.

For what it's worth, I think that values will fall by over 40% of what they were 'before Northern Rock' and, based on the last three downturns, won't recover for sometime after the Olympics in 2012. I realise that this sounds, scary but previous experiences taught us that prices fall further and take longer to recover than anyone expects.

How bad can it get?