It seems there are about as many predictions on house prices as there are days in the year. We won’t try to describe all 365 theories, but here is a cross-section of some of the more interesting ideas rattling around.

First off, here are the two extremes.

The Centre for Economics and Business Research (CEBR) said “Some house price experts only take account of macro factors, and some would even have us believe that there is some fundamental long-term ratio between average incomes and house prices, that virtually rules out every other factor. The same experts have for years been telling us that house prices are set to fall by over 30 per cent, a prediction that gets recycled over and over again, thus getting further and further from being right. Even during this – the housing market crash to end all crashes – prices fell by 22 per cent from peak-to-trough, but now stand just fifteen per cent lower than the end of 2007 peak. These experts are also telling us that next year house prices will fall back significantly. We think this is an unlikely outcome for a number of reasons.”

It then went on to list these reasons: Namely mortgage lending will continue to improve, low interest rates and a shortage of supply.  (The supply shortage, it argues, has been made more extreme by the credit crunch as we have seen fewer new builds).    

CEBR concluded: “Taking all of these important factors into account, our central prediction is that house price growth will moderate in 2010, with prices at the end of the year being between two and four per cent higher than today. Over the longer term, the weak recovery will continue to hold growth back, but we still expect house prices to be around fifteen per cent higher at the end of 2012 than they are today.”

At the other extreme you have Roger Bootle, who, in his Telegraph column today, said: “The ratio of house prices to earnings is still higher than it was at the peak of the previous housing market bubble in the late 1980s. House prices may take another leg down this year – by perhaps 10 per cent.”

So that’s the two extremes.  At one end we have the argument house prices will fall because the ratio of price to income is too high. At the other extreme: affordability is more important than price.

Then you get the inbetweeners.

The Telegraph ran a story with the headline: “House prices face decade of ‘sobriety’”.  The article went on to quote upmarket estate agents Savvils as predicting house prices will rise by just 40 per cent this decade, compared to 68 per cent in the noughties, minus 14 per cent in the 1990s, plus 43 per cent in the 1980s and 49 per cent in the 1970s. Note, Savills are talking about real changes, that’s after allowing for inflation.

Quite frankly, the Telegraph headline is surprisingly downbeat considering the prediction in the article. Given that the decade begins with house prices already pretty high in proportion to income, it would be quite a rally if they rise another 40 per cent this decade.

Meanwhile, Hometrack reckons house prices will fall by 1 per cent in 2010. Richard Donnell, who is the director of research at Hometrack, said: “On the basis of the economic outlook and market evidence, we believe it is unlikely that the improved market conditions of 2009 will be replicated in the New Year.”

As for the Nationwide, it said that it expects to see “no significant house price movements in either direction…We expect the strong recovery in house prices seen during 2009 to slow in 2010, as a more natural supply of property returns to the market,” went its official statement.

The Royal Institution of Chartered Surveyors has predicted a 2 per cent rise in prices this year.

Maybe the countryside will be the place for the property market. Rob Bruce, the man who is head of research at Hamptons International, reckons that demand from property buyers from the Middle East and Asia will push up the price of country homes.  The same logic applies to properties in London, which he also expects to rise sharply in price.

The Halifax reckons life is getting easier for first-time buyers. It says the average home is now affordable for first-time buyers in no less than 39 per cent of all local authority areas. This compares with just 6 per cent in 2007.  Martin Ellis, housing economist at Halifax, said: “Housing affordability for potential first-time buyers has improved substantially over the past two years due to the combination of lower house prices and reduced mortgage rates.

“Mortgage payments in relation to earnings are currently significantly below the average during the past 25 years. The tightening in lending criteria over the past two years is, however, making it very difficult for some to take advantage of lower property prices and mortgage rates.”

This is what we think.

2009 saw house prices rise by 5.9 per cent, according to the Nationwide. The fact is, last year surprised on the upside.  Despite the dire economic outlook, house prices rose.

It is tempting to conclude that the pressures pushing upwards on house prices must therefore be great indeed. If prices go up in a recession, just imagine what they will do in a boom.

However, there are good reasons to think the housing market is still in for a nasty shock.

Firstly, there is the fiscal deficit. This will mean higher taxes, which will eat away at our disposable income.   Secondly, there’s bank leniency to borrowers struggling with mortgages. A more cooperative attitude from banks in 2009 meant fewer mortgage repossessions than one would have expected. This is surely the key reason why the property falls in 2008 didn’t turn into a rout in 2009. But how long will this continue?  Banks are seeing a mounting backlog of mortgage holders who are becoming further and further behind with their repayments. The danger of repossessions still lurks, like the sword of Damocles.

Unemployment was not as badly affected last year as most had expected. This is probably explained by workers opting to work shorter hours and for less money, rather than risking job losses. It is tough calling what will happen next, but it seems reasonable to assume that a recovery will mean those workers with jobs will work longer hours, so we may see a jobless recovery.  What effect will this have on house prices?

There is a problem, however, with the affordability argument. Low interest rates have clearly been a factor in pushing house prices up recently.

But how long will they remain low? No one knows the answer to that. And if they do stay low, the likely reason for them staying low is that the economic bad times are continuing.

Anyone who is seduced into the property market by low interest rates is taking a big risk  The affordability argument is very dangerous.

As for the argument that lack of supply is driving up house prices, there are weaknesses here too. Recent research revealed more and more 30, and even 40 year olds, are choosing to move back in with their parents.   Price does matter, no matter how low supply is. If price is too high, people will find a cheaper alternative.

As for the argument that builders don’t want to build. The only thing that is encroaching on builders’ profits is the cost of land. This has been kept high because companies with large land banks are reluctant to sell, or even to put a fair value on their land holdings

This can not last.

If land is revalued, the result will be big losses, but it will then become profitable to build, even if prices fall further.

It is difficult to see how house prices can rise at anything like 40 per cent this decade, or at the kind of rates predicted by CEBR, when the arguments for rising house prices are based on the assumption that interest rates will stay low, unemployment will fall and disposable income will rise. In practice, either the economy will recovery and rates will shoot up, or the economy will limp from one crisis to the next and rates will stay low.    Alternatively, a sterling crisis and rising inflation could mean the worst of both worlds: poor economic performance and rising interest rates.

But, whichever way you look at it, the argument that house prices will rise because interest rates are low is at best dubious, at worst very dangerous.