Concerns that the housing bubble has been punctured have caused serious share price subsidence in the house-building sector, although Citigroup proposes that there has been an overreaction and doesn’t expect ‘to see scenes from the early 1990s repeated’. Recent analysis from the financial services giant posits that ‘short-term demand is likely to wane, but the medium-term picture remains the same’, adding that ‘with continued population growth and change, and the ongoing shortage of house production in the UK, the fundamentals continue to look good’.

Property website Rightmove’s September review of the housing market did little to help the short-term mood, showing a 2.6 per cent month-to-month fall in house prices – the biggest drop since January 2002. The survey blamed the impact of home information packs (HIPs) for houses of four or more bedrooms for the fall, as a 41 per cent slump was seen in the number of such properties, causing this ‘statistical anomaly’. This ‘distortion of normal market forces’ is predicted to continue into next year due to the further phasing in of HIPs to smaller-sized properties.

If it does, supposes Rightmove’s Miles Shipside, ‘The concern will be that impulse sellers are being put off by the additional costs and hassle of a pack. While it should all settle down with time, it will take longer as sellers are now facing the challenges of a cooling market and the highest interest rates for six years.’

Elsewhere, Fionnuala Earley, chief economist at Nationwide, reassures that in the short term, the US sub-prime crisis is ‘unlikely to have a significant additional effect on the rate of growth of house prices in the UK’. The building society expects house price growth of between five and eight per cent in 2007, but given the sector’s importance to the whole economy, any long-term effect would hit hard. A prolonged financial downturn ‘would not only affect investment bankers, but would also have negative knock-on effects for legal, accountancy and other professional services that have benefited from the structured credit boom’.