As demand falls, so will house prices

What are we to make of the housing market at the moment? The news was negative all through the autumn - the number of buyers was falling, mortgage lending was collapsing and, as a result, prices were dropping. The great 2004 housing market fall appeared to be on us.

But now some of the indices (there is, on average, one housing market index published every two days in Britain) are pointing upwards again.

The surveys from Halifax and Nationwide, for example, both turned upwards in January and today's figures from Rightmove indicates that asking prices jumped 2.3% over the past month.

Some estate agents, determined to talk up their books, have declared the correction over and say there has been a return to rising prices.

That still seems unlikely. Rightmove says sellers have been encouraged by agents' talk that spring is the busiest time of the year.

They have put their property on the market at a hefty price and can just see what happens, especially if they are in no hurry to sell.

There can often be a big gap between what sellers initially hope to get and what they actually sell at. The standoff could last for a while.

But, in thinking about where prices might be heading, it is worth looking at the old favourites of supply and demand.

At the moment, the indicators of demand - mortgage borrowing, buyer registrations at estate agents and so on - are almost universally weak. Meanwhile, those of supply - properties coming on to, and already on, agents' books - are very strong.

The number of first-time buyers is at a 20-year low. The Council of Mortgage Lenders says buy-to-let demand is wan ing. The CML and the British Bankers' Association said on Friday that mortgage demand was very weak. Rightmove says today that a record number of properties came on to agents' books in the past month.

This, of course, points only in one direction for prices - down. It could, however, turn out that sellers withdraw if they cannot get the price they want and buyers decide that the small falls seen late last year are all they are going to get and so step into the market.

But you would be brave to bet on that happening.