Overview: In housing terms, all roads lead in and out of London

Which is the worst-case scenario: a housing market that moves from a gentle slide into a rapid descent, or a burst of activity that sets off a new cycle of increasing prices?

Which is the worst-case scenario: a housing market that moves from a gentle slide into a rapid descent, or a burst of activity that sets off a new cycle of increasing prices? Both are equally unpalatable, but that doesn't stop us thinking only in extreme terms. If we can't get the measure of a market that is doing neither of those things, then sitting on our hands seems to be the safest option.

This is about as much as many people are prepared to do at present. At this time of year, we get plenty of help from analysts whose job it is to parcel up market trends into useful 12-month charts. Like buyers and sellers at the moment, they are inclined to look ahead to January.

One of those who attracts a large journalistic turnout for his annual forecast is Richard Donnell, head of residential research at FPDSavills. His message was clear, if undramatic - he does not believe that a crash is around the corner; key to confidence is the level of interest rates; and there are still opportunities out there for canny buyers.

His briefing last year marked out the problems buyers have faced in 2004 - affordability and limited price falls in the south. What Donnell did not expect at this time in 2003 was that mainstream house price rises would be more than double, at over 4 per cent.

The much-vaunted slowdown took longer to bite but now that it has, Savills research finds the value of the average house will rise by just 2 per cent - the lowest level of growth for nine years. This is a pattern, in his view, that will persist over the next few years against a background of subdued turnover, one factor that Donnell believes has not been properly taken into account.

The disappearance of the first-time buyer is part of this story, and he does not expect the picture to change much for them in the immediate future. Since they need to find such hefty deposits they will delay buying until later. "Perhaps more could afford to if they wanted, but they have learnt from their forebears and don't want to make the mistake of stretching themselves to buy a one-bedroom flat and then find they have to move six months later," says Donnell. All this is good news for rentals, of course, and as it happens one-bedroom units are in demand.

For those itching to invest in property, where should they be looking? Rather than thinking "gentrification" they would do better to concentrate on regeneration, although it might take time for the effects of transport and infrastructure to be felt in prices.

All the same, don't be put off from being the first into a scheme just because the number of homes proposed is alarmingly high. Developers need to get the ball rolling, so prices of the first units tend to be attractive. Otherwise, says Donnell, look for some older property that will benefit from a building project.

There is a danger in the South-east that we are missing the obvious by concentrating solely on development out of London. Good-quality, middle-market homes in popular locations in the capital are still a wise investment and the value of family housing in particular may start to look attractive compared with those at the end of the commuter line.

In housing terms, all roads seem to lead in and out of London. The slowdown started there: prime property (£2m- plus) has barely grown in the three years to June, so will it starting moving up again as everyone else moves down to meet it?

Donnell believes London, the South-east and Scotland are the areas to watch over the next few years. And those pesky year-on-year values? "If interest rates move down faster than expected, then the likelihood is that values will rise by closer to 5 per cent than the 2 per cent we are currently forecasting," he says.