Property: The boom that never was

So why isn't your house worth more? Because the latest price revival wasn't built to last, says William Raynor

At adjacent ends of parallel streets near one of the commons in south-west London, three houses are for sale. They look much the same: red-brick, late Victorian, three-storey terraces with four bedrooms, two receps, front yards, back patios.

One is at pounds 375,000, having been done up from scratch. The second - one bathroom - is at pounds 339,000. The third is at pounds 320,000 - appreciably more than the pounds 240,000 it was supposedly worth a year ago, but pounds 20,000 less than what the estate agent predicted it would fetch two months ago.

This house's owners admit it is "a bit tired" and needs pounds 10,000 spent on the kitchen. At first they shared the agent's confidence, but now they aren't so sure. Round the corner a fourth, again fairly similar, house is on offer for pounds 410,000, yet at pounds 90,000 less theirs is attracting little interest.

"The market seems to have gone dead," they lament. A predicament, but in the desirable parts of the capital and other "hotspots" it's not unusual.

"Everyone talks prices up," says one London agent, "then several try to sell at the same time in the same vicinity and overload the market. Houses or apples, the price comes down. It's elementary economics." Another agent says: "The major factor is scarcity. If one house comes up in a desirable street, someone will pay a premium to get it. Hence the frenetic activity late last year and in spring 1997 in certain areas.

"But in most places, since May, the market has been taking a breather. Just as well; prime London went up 25 per cent June to June. It couldn't go on."

Some people thought it could, and are now disappointed. But scarcity really was the key this time, and the latest boom was never going to be as broad or long as that of the late 1980s. The demand just wasn't there. In 1988, 2 million residential property transactions were recorded nationally. Dr Paul Sanderson, head of research at the Nationwide Building Society, says: "Between 1992 and first half of 1996, the figure was around the 1.1 million a year mark. It recovered slightly in the second half last year and has settled at around 1.4 million - the level of 1981."

October's Housing Finance Review from Nationwide said: "Supply shortages continue to dominate, and only London has seen strong increases in all areas." UK prices rose in the third quarter of 1997 by 4 per cent on the second quarter and, although sales had been "at best flat over recent months", were over 12 per cent higher than a year ago.

The Nationwide said confidence remained high, and that market activity would improve as "supply logjams" eased. It predicted house inflation of a "more modest 7 per cent next year".

The Halifax said house prices rose in October by 0.4 per cent nationally, and "on an annual basis, house price inflation fell to 5.4 per cent compared with 6.9 per cent reported for September". It added: "There are indications that more properties are coming on to the market which should further moderate house price increases during 1998."

Why such a disparity? Perhaps the Halifax and Nationwide are "weighted" differently in sector and geographical spread. But a clear overall national picture is difficult to spot.

Ian Perry, national house price spokesman of the Royal Institution of Chartered Surveyors (RICS), says feedback from its members indicates an "overall increase in the past year of probably about 3 per cent above inflation - ie 6 per cent nationally". Some hotspots have shown increases of 20 per cent plus. But this means that other spots have remained flat (see panel).

His forecast for 1998? "Some areas may go up 10 per cent or more, but others won't rise at all." Ah, and can you tell us which?

Price rises depend on location - always did, always will

As RICS housing market spokesman for the South, and a senior estate agency partner in London, Tony Copping-Joyce prefers to talk specifics rather than averages. "It is very much a matter of location, location, location." In parts of the South-west, such as Plymouth, the market has been "very slow", rising 4 per cent or less in the year.

"For people to read that prices have gone up 30 per cent in London is bloody ridiculous. They may have in fashionable Fulham, Barnes or Islington. But in Wood Green or Leytonstone, sellers probably won't get any more then they could a year ago."

With uncertainty about plans for capital gains tax and Miras, and about how Asia's financial woes may affect the London investment property market, forecasts are tricky.

Kelvin Francis, senior partner of a Welsh agency and an RICS Cardiff spokesman, says the market in Wales has been buoyant in the industrial South-east and North-east and for country houses and holiday homes in the South-west, but flat or even down in the former coal-mining valleys.

In the North-west, a traditional two-bed terraced house in Burnley could be yours for pounds 20,000 - no change on the year - while in Gorton, Manchester, it could be had for pounds 15,000, less than last year. But nearby in Didsbury or Wilmslow, a three-bedder could have gone from pounds 100,000 to pounds 125,000.

In Scotland, says Elizabeth Bruce of RICS, flats in Perth and Hawick are hard to sell, and there's an oversupply of tenement property in Dundee. But in Edinburgh and Glasgow prices have held up well.