Inflation may be rising and asking prices too high but there is hope

Estate agents can expect a boost from the next generation of first-time buyers

What a difference a year makes. This time last year, a climate of optimism still pervaded both the overall economy and the housing market.

Credit was plentiful, inflation seemed broadly under control and house prices were reaching new highs. All of this changed last summer and a number of challenges have since arisen.

Firstly, the global financial market crisis, which erupted in August, has significantly limited the availability of credit to companies and households throughout the UK.

Initial hopes that the crisis would be confined to Wall Street and the City of London have faded and the repercussions are now being felt on the high street, particularly in estate agent outlets.

Even in the prime mortgage market, there is less appetite to lend at high loan-to-values and income multiples - a situation that is unlikely to change anytime soon.

Inflationary pressure

Yet, while the media has largely focused on the credit crunch, another equally important challenge for the economy and housing market is the growing threat of inflation. With oil and food prices rising to record levels in response to growing global demand, household incomes have come under pressure, making it even more difficult for first-time buyers to enter the housing market.

At the same time, high inflation has made the Bank of England reluctant to reduce interest rates, so mortgage rates may not come down as quickly as some first hoped The combination of tighter credit and higher inflation undoubtedly means we face a tough couple of years both in the overall economy and the housing market.

Most forecasters expect the economy to remain in a sluggish state until at least 2010, producing a gradual increase in unemployment. In the housing market, transactions have already dropped to low levels and prices have fallen for seven consecutive months from their peak.

Asking prices

Yet while the poorer economic backdrop has clearly been the driving force behind the slowdown in housing market activity, one has to wonder whether some of the weakness in the volume of property transactions has been influenced by the speed with which asking prices have been adjusted, in line with the new economic environment.

Inflation may be rising and asking prices too high but there is hope
Estate agents can expect a boost from the next generation of first-time buyers

Even though selling prices are now showing year-on-year falls, asking prices are still showing increases. Asking prices have to reflect market conditions, if sales are to pick up from current lows. Agents clearly have a role to play in achieving this.

Ray of light

We should not expect a quick recovery anytime soon.

After many years of boom, it will take time for the economy and housing market to adjust. The next few years will not present any opportunities to ride a wave, and traditional estate agency skills will once again have to come to the fore.

Looking beyond the undoubtedly difficult times ahead, however, there are reasons to be optimistic for the long term. Demographic projections show that the population of potential firsttime buyers - 18 to 34-yearolds - will be on a steady increase in the next few years, adding to a pool of pent-up demand that has been forming as people have been priced out of the market.

So those who can navigate the downturn and tap into this potential demand can expect good long-term opportunities ahead.

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