The housing market looks set to hold firm despite the problems caused by the credit crunch and it should avoid a 1990s-style crash, commentators said today.
Halifax today said house prices fell by 2.5% during March, the biggest monthly fall since September 1992.
Annual house price growth has slowed to just 1.1%, meaning that house prices are now falling in real terms on an annual basis.
But despite this the majority of economists do not think the market is heading for a 1990s-style house price crash.
Only one economist has so far revised down his forecast for house price changes in 2008, with current predictions ranging from rises of 1% to falls of 7%, although many groups said they were likely to change their forecasts later this year.
The credit crunch is having a bigger impact on the mortgage market than previously predicted, with lenders raising their rates, reducing the loan-to-value ratios they are prepared to lend on and pulling deals that are attracting too much business.
This is having some impact on the housing market, reducing demand as some people, particularly those with impaired credit histories, struggle to get a mortgage, while it also limits the amount people can borrow, both because lenders are more risk averse and because mortgage rates are higher.
But while these factors are likely to lead to a fall in activity in the market, they will not in themselves trigger a house price fall.
In order for the cost of property to dive steeply there would need to be a flood of homes coming on to the market.
Martin Ellis, Halifax chief economist, said: "There is a fundamental difference (between now and the 1990s) in terms of the economic position.
"We have an economy that is still growing, we have a very strong labour market and low unemployment. What happens in the employment market is a key driver of house prices.
"That is very different to the 1980s and 1990s when inflation got out of control at 10%, interest rates doubled and unemployment doubled. We are not expecting a repeat of those circumstances."
He said during the 1990s crash people had to sell their homes because they could no longer afford their mortgages, and that increase of supply forced prices down.
He added that low interest rates and a shortage of new homes being built would also help to underpin current housing valuations, although the group expects the number of homes changing hands to fall by 30% this year.
Nationwide forecast in November that house prices would end 2008 either unchanged or up to 4% lower, and it now expects prices to be towards the lower end of this range.
Fionnuala Earley, Nationwide's chief economist, said when the group issued its forecast one of the risks it identified was that the credit crunch would go on for longer than previously thought, and this was now happening.
But she said it was difficult to tell how much the issues in the mortgage market were affecting consumers.
She said: "We have seen a change in sentiment, but some of that will be down to changing expectations (for house price growth) and stretched affordability."
She added that lenders may have reviewed their lending criteria even without the credit crunch, as they needed to be more careful when borrowers were more stretched.
But she stressed that she was not expecting a house price crash, as high levels of employment were likely to continue to support house prices.
Ms Earley said: "The only experience we have of a really bad house price crash is in the 1980s.
"Then interest rates nearly doubled over night and people couldn't afford their mortgage.
"On the corporate side, interest rates led to companies going bankrupt and people losing their jobs, leading to a second round of forced sales."
She said interest rates were currently higher than they had been, but there had not been a massive increase, and while the number of homes being repossessed was likely to rise, particularly in the subprime sector where people are most likely to encounter difficulties remortgaging, there was unlikely to be a deluge of forced sales.
But Howard Archer, chief UK and European economist at Global Insight, is more pessimistic, and he has changed his forecast for the year from house price falls of 5% during both this year and next to falls of 7% in 2008, followed by a further 8% drop in 2009.
He said: "The overall impression is that house prices were buckling markedly under the substantial pressure emanating from increased affordability constraints and markedly tighter lending conditions even before the latest escalation of the credit crunch.
"The recent escalation of the credit crunch means that there is a markedly increased danger that a sharp housing market correction could occur.
"Current rapidly deteriorating sentiment over the housing market also heightens the risk that house prices could fall more sharply over the next couple of years.
"Indeed, there is now a very real danger that a drop of more than 20% in house prices could occur over the next couple of years."
But Chris Wood, vice president of the National Association of Estate Agents, is more optimistic.
He said: "The main thing is that there are still buyers out there, but they are being a little more cautious about what they are going to buy and when they are going to buy."
He said the length of time it took to sell a home had increased from between 28 to 49 days to around 60 to 70 days, while sellers were generally accepting around 10% less than their asking price.
He said: "House prices are dipping but we are not seeing the market go into terminal decline. There's no mass panic that we saw in the 1980s and 1990s. The market is catching its breath. It has a sniffle, rather than influenza."Reuse content