If you won't sell, then how can you buy?: House sales are about to boom - or bust. Forecasts are confusingly at odds, says David Lawson

THE PROSPECT that interest rates may rise instead of fall, as we are dragged in the wake of German efforts to control inflation, is sending tremors through an increasingly jittery property market. Some experienced estate agents are even whispering that if rates rise the market could grind to a halt as people hibernate at home, refusing to move because of uncertainty over the value of their house, resulting in a wholesale clear-out of estate agents.

However, this is not what the forecasters say. According to them, prices will rise next year, though they differ on how much. The agents are not so sure. Forecasts are based on indicators that ignore the crucial factor of fear. No matter how cheap the houses, people will not move if they are worried about losing their jobs.

The general election result should have been the point when property hit rock bottom. Fears of tax increases were lifted, incomes were rising and buyers were enjoying a brief holiday from stamp duty. They were fully expected to return in droves and help prices recover. But the market is staggering about in a state of semi-consciousness.

Things might feel better if the experts could come up with a common view of the future but, as ever, no one seems able to agree. Price increases will accelerate to 12.5 per cent by next year, according to calculations for the Household Mortgage Corporation by the Henley Centre. They could rise around 5 per cent, James Morrell predicts for Charterhouse Bank. On the other hand, John Wriglesworth, top of the housing guru charts, believes the tide of empty property should have cleared by next spring leading to a 6 per cent average increase.

Professionals cannot even agree about what is happening today. The Halifax raised spirits by reporting that average prices had edged up by 0.3 per cent in June - the first increase since October once seasonal factors are taken into account. It forecast increasing sales this year and prices moving on to a 'gently rising trend' in 1993.

In the same report, Halifax's estate agents said the election and stamp-duty cuts had little impact on buyers. Yet Cornerstone, owned by Abbey National, says confidence rose after the poll result and prices have stabilised. 'Some areas, in fact, are predicting slight price increases before the end of the year,' says John Hansen, its sales director.

Both could be right in their own way. Sales rose after the election but have fallen away again. Tony Margo of Keith Cardale Groves is blunt: 'Nothing is happening. In fact, we are seeing less activity than before the election.' But George Clark, of the Edinburgh Solicitors' Property Centre, says that the city's average prices have remained constant over the past year and some parts have risen as much as 12 per cent. Mike Jones, new president of the National Association of Estate Agents, is also reasonably happy at the way things are going. But he is based in Cardiff, which has ridden the worst of the recession.

The only common message is: there is no common message. 'Neighbouring areas can be going in different directions and one week may be entirely different from another,' says Peter Miller of the Royal Institution of Chartered Surveyors. This is because fear, rather than figures, now rules the roost.

Raw statistics indicate that we should be seeing a busy property market. Homes are cheaper than at any time since the mid-1980s, incomes have risen and mortgage rates are back to pre-boom levels. When an economist puts these figures into a computer it produces the message 'buy' - so the forecasts indicate that is just what people will do. But buyers suffer from annoying problems like fear over whether the good times will last.

'I don't think that even a cut in interest rates will bring them back,' says Mr Margo. 'They are seeing redundancy hitting friends and neighbours and it makes them concerned whether they will be in a job next year. Those who do not have to sell are not moving.'

This alliance between unemployment and house prices has existed for years but few have picked it out, concentrating instead on incomes. Mr Wriglesworth believes people move when they see unemployment falling - from however high a figure. Meanwhile, first-time buyers, the white knights meant to save distressed owners, are proving fickle. Deals are collapsing at the last minute as they also fall victim to uncertainty about the future, says Mr Miller.

Mr Margo is in London, where high unemployment is a new phenomenon as service industries are shaken out. The regions are not as badly hit, which is why the Halifax can report small average price rises recently in such areas as Yorkshire, the North-west and Ulster. London prices, meanwhile, have fallen another 2 per cent.

People are often as divided as the markets they live in. More than 80 per cent of homeowners polled by the Britannia Building Society thought it was a good time to buy. 'The flip-side, however, is that 78 per cent think it is a bad time to sell,' says managing director Michael Shaw. And if you don't sell, you can't buy.

The one common thread is that things will get better; when is another matter. Half-a-million first-buyers are geared up to move during the next six months, which shows the potential power of pent-up demand, says the Britannia. Yolande Barnes of Savills Research goes even further, estimating that more than 4 million buyers of new homes intend to move within 18 months. That would put the 1988 boom in the shade.

But when will it happen? Mr Jones predicts next spring, as a recovering economy coincides with the traditional buying season. Mr Margo is less optimistic about London: 'I can't see anything significant happening in the next 12 months.' Prices are expected to increase again towards the end of the year, but 1992 as a whole is expected to show a drop of 3.5 per cent over last year, according to Mr Morrell, and 5 per cent according to Mr Wriglesworth.

'Recovery no longer depends on prices rising,' says Mr Miller. 'It just means being able to sell.'

Before that happens we might need to see drastic measures to help relieve the million or more owners stuck in homes worth less than their mortgages, plus extra subsidies for first-buyers. The Government will have to reverse its stance on stamp duty and tax incentives if the market fails to pick up soon, says Dr Joe Nellis of the Cranfield School of Management: 'In the long term, housing looks safe because demand will rise over the next decade as more households are set up.' But some of the projections about price rises next year must be queried if buyers remain wary and no new incentives are forthcoming.

More revolutionary changes to ease repossessions could also be forced on the Government. Plans to halve the numbers from last year's 80,000 have been questioned by a Rowntree Foundation study showing only a tenth of those in arrears will be helped by housing-benefit reforms. That will leave empty homes dragging down the market for years, says joint-author Steve Wilcox.

Having hit this rocky plateau, homeowners could therefore remain stranded for some time. Too frightened to climb to higher slopes for fear of hitting a pothole, they may require a helping hand from building societies and ministers before we see the sort of recovery some forecasters have predicted.

Reducing Mortgage Arrears and Possessions, pounds 7.50, Joseph Rowntree Foundation (0904 629241). Business Forecasts for the Housing Market, pounds 150, James Morrell Associates (071-628 3563).

(Photograph omitted)