It has been confirmed today that according to Treasury figures, the UK housing market is heading for a slowdown rather than a crash as many had feared.  This will be much appreciated news to the stock market, as the housing market can often lead the economy in either direction.  So what is happening?

While the signs in the housing market are mixed at the moment, the general trend is one of reduced demand and softening prices. Probably caused by both the recent credit crunch and ongoing concerns about the future of the UK economy, it seems that some house buyers are holding off for the moment.

The trend at the moment has rubber stamped the Bank of England approach which has been criticised by many economists.  It seems that retaining interest rates at current levels has served to squeeze the mortgage market, and the credit crunch recently added to the pressure (with some mortgage rates being pushed higher). Not for the first time it seems that the Bank of England have been proved correct in their focused approach to the long term situation, and have avoided short term policy changes which may come back to haunt some Central banks around the world.

It will be interesting to see if this steady reduction in house prices continues, and at what point (if any) those with substantial paper profits will look to crystallise their positions.  If the property market does not fall back too far, then there is every chance that the UK economy will avoid a marked slowdown, and we may just experience a period of consolidation - which will hopefully take out much of the “froth” in the market.