The soft landing brigade reckon they have won the argument. House prices did not crash in 2005, and November and December appeared to indicate a significant improvement. Even the RICS score, the barometer index, which had been in negative territory since August 2004, finally went positive. Likewise, Hometrack, which had house prices falling for 15 months in succession, before reporting zero inflation in November, reported on a 0.1% increase in house prices in December.

As for Nationwide, which often reported rises last year, while others reported falls, it had house prices up by 0.5% in December.

And the press hailed the end of talk of a possible crash in house prices.

Even the FT, headlined: “Slow rise in house prices eases crash fears.” And Capital Economics, the think tank which has been predicting a 20% crash in prices since 2002, finally seemed to relent, and said: “There would appear to be a growing chance that the adjustment to lower value valuations will come about largely via a period of broad nominal price stagnation.”

There are flaws in these optimistic arguments, however.

According to RICS, average house prices in Q3 of last year were 7.8 times average earnings. Since 1969 the average ratio was 4.9. In other words, house prices are still incredibly high. And just because there wasn’t a sharp correction in 2005, it doesn’t mean there will never be. Frankly, to extrapolate the 2005 experience over the next few years is ludicrous.

And while the soft landing prophets say told you so, others say that the Buy to Let market is likely to remain stagnant for some time.

2005 was the year that the FTSE 100 comfortably outperformed the housing market. Memories are short. If 2006 sees a repeat, then equities will be the home for investor money, not bricks and mortar.

But while Buy to Let investors stay away, First Time Buyers are not returning with glee. And you need one or the other, or else few property chains have a beginning.

Things are different now. Interest rates are low, but so is inflation. Mortgages might be more affordable in the short term – thanks to low rates, but in the long term, with inflation no longer there eroding the true value of debt, owning a property is to become more expensive. It could be many years before this factor starts to influence house prices.

Finally, don’t forget success often breeds success. A buoyant property market, led to optimism, which led to more people wanting to buy, which led to yet further rises in prices. How will markets reacted to years of stagnation?

It is something we have not truly witnessed before.

Put all this together, and you have a market which is likely to remain on shaky ground for years, always vulnerable to a change in economic conditions.

The soft landing versus crash debate is not over. It’s just that, in this era of low inflation, the time scales are likely to be more protracted.

© Investment & Business News 2013