Property market faces up to 12 months of stagnation

Home buyers and owners were warned yesterday by two separate surveys of the property market that house prices were continuing to fall.

The Royal Institution of Chartered Surveyors said its latest research found that the proportion of its members reporting price falls was the highest for nine years.

The National Association of Estate Agents said house prices had fallen for the fourth month in a row, adding that the market "is clearly now showing signs of the correction we have been predicting all year".

These latest surveys follow data indicating that after five interest rate rises, the housing market has come off the boil.

Both organisations insisted a full-blown crash was not on the cards.

In its latest survey for the three months to September 30, the RICS said Scotland was the only region to enjoy an increase in property values last month as higher interest rates took their toll on buyer demand.

It said 30% more chartered surveyors reported a fall than a rise in house prices over the period. This is a much bleaker assessment of the market than a few months ago, and the biggest increase recorded by the RICS since mid-1995.

In May, 42% more surveyors reported a rise than a decline in prices. In addition, buyer inquiries are down for the fifth consecutive month, while completed house sales have fallen to their lowest level since summer 2000.

The RICS said surveyors had become "more downbeat" about the outlook for house prices over the next few months.

"With interest rates close to reaching a peak and the economy likely to stay out of recession, the housing market is set to see a period of stagnation over the next six to 12 months," a spokesman said.

He added that it was unlikely the housing market would experience a "deep or prolonged downturn" as long as the economy remained stable and people were confident about job security.

The NAEA added to the gloom by reporting that average prices fell 1.6% last month, taking the annual rate of property price growth to 7.95% - its lowest level so far this year.

Richard Hair, president of the organisation, said: "This month's reports from the estate agents at the frontline reveal that prices are indeed continuing to fall slightly, and buyers are adopting a 'wait-and-see' attitude."

However, prices were still historically high and unachievable for many people looking to get on to the property ladder. Mr Hair said a crash was "a very unlikely prospect".