In 1999, so called ‘property experts’ predicted a worldwide crash, yet eight years later all is still relatively steady...

Yes, there have been some blips, but in general the property market has remained in positive growth over the past few decades.

Yet again doomsayers are predicting another worldwide property market crash. Property prices are so high that people can no longer afford to buy, inflation has made the cost of living higher and earning growth has not kept up with house prices.

Short term interest rates are on the rise and above long term averages, so people will no longer have the confidence to buy property, or take equity from their houses.

This will have a dramatic impact on the construction industry and will also greatly reduce consumer spending, which will act as a precursor to recession and a bust in property prices worldwide, so they believe.

Simon Tweddle, Chief Analyst at Property Secrets, comments; “As we’ve said before at Property Secrets, many of these arguments can at first sound convincing. The truth is they actually tend to miss the point and completely ignore some real fundamentals that drive property markets.”

“Yes, interest rates are rising moderately in most countries, but they are nowhere near the levels to cause serious concern and we don’t predict any major change in the near future.”

“In the US, UK and Ireland, in particular, property prices are high compared to earnings. This was also the case a couple of years ago and yet prices have continued to rise due to solid economic fundamentals.”

Demand for houses increasing

If we look at trends in the UK, we can see a clear example of an economy that has grown quite significantly over the last 10 years, with low unemployment levels and a population that is increasing at a rate of 0.6% per year.

This means that demand for houses is increasing in the UK, which in turn should result in house prices going up, not in fact down as the doomsayers are predicting.

Also, the sizes of households in the UK have been falling consistently over the last few decades, so there are more people in the UK with fewer people per household, meaning again that there is more demand for housing.

Another factor to have a significant impact on house prices is the lack of new stock; in the UK demand currently far outweighs supply, which again indicates a potential property price increase.

These trends are also apparent in other Eastern European countries where unemployment rates are falling, wages are rising and locals are now able to get mortgages.

Traditionally, the housing stock in Eastern Europe is quite poor so there is a huge desire to move out of the run down panelaks into nice new, shiny property which people can now afford to do.

Simon adds; “The UK, US, Ireland and Australia are all quite clearly near or at the top of their cycle in terms of price. But the risks of there being any kind of crash are small.”

“If these major Western markets do take a breather, they will have little effect on markets in most of Eastern Europe, which is driven by local demand, not foreign investors and have very strong fundamentals”.

Britain an ‘exposed market’

Britain is one of the most exposed markets thanks to rampant speculation over the past decade, though it is by no means alone.

Claims that shortfalls in the supply of new homes will lead to an inexorable rise in UK property prices in coming decades have 'as much credibility as Britney Spears' latest comeback,' claims ABN AMRO Economist Dominic White

'The decline in global interest rates has now been largely reversed,' White said. 'Rising real interest rates could result in greater economic volatility. I believe this leaves housing markets vulnerable to a correction on a global scale.'

Central banks have raised interest rates to the highest level since 2001 across the 30 members of the Organisation for Economic Cooperation and Development.

Meanwhile yields on government bonds - a key measure for the cost of borrowing - have increased in recent days, sending shockwaves through financial markets.

Although fears for the health of the US housing market have captured headlines, the degree of over-valuation is more 'severe' in Britain, Australia, Spain and Ireland, ABN Amro calculates.

A note by the bank in April found that UK residential property is 50% overvalued, whereas US houses are 25% too expensive.

The research comes ahead of a slew of key data that will expose the health of the British economy.

Among the most significant reports will be official inflation numbers due on Tuesday. Economists expect consumer price growth to ease to 2.5%, but even a larger drop is unlikely to prevent further hikes by the Bank of England.

Normal market pattern

Neil Lewis, Property Secrets CEO and co-founder, concludes:

“My view is that the property market could simply be in for a slow spell. This is not a disaster; it’s a normal market pattern.”

“We view Property Investment as a long-term strategy and a financially lucrative path for the future. We advise investors to disregard the rumours, stay calm and ride out the ups and downs. Property prices have doubled every seven years since World War II, which is a trend that is likely to continue in the UK.

“We are concentrating on high-growth markets that have sufficiently strong fundamentals such as Czech Republic, Poland and Romania and we expect to see very substantial returns in these markets both in the short and long term, as we already have done over the last few years”.