The Centre for Economic and Business Research, an influential economic think-tank, has predicted that the second half of this year could see house prices slide back by a couple of percent - but they stopped well short of predicting a full on slump in the market.

Every year the CEBR produces Housing Futures, a long-term look at how the UK housing market will develop. Based on sophisticated computer models and a sound understanding of the industry, the report and ½ day executive briefing include fully quantified forecasts and explore the issues most relevant to the UK housing market of today and tomorrow.

The latest house price data from Halifax/Bank of Scotland shows house prices up by over 16 percent year on year. The CEBR believes that this will not continue against overall economic growth in cash terms around 5 percent and inflation of around 2½ percent. Nevertheless, they say, there will be long term upward pressures on house prices resulting from demographic changes and the constraints in releasing land for development in London and especially the South East of England.

The short term in some ways will be the most interesting. Will the inflation of recent years be replaced by an early 1990s-style housing slump which could lead more recent house buyers into negative equity again? Or will there be a soft landing?

To answer this the CEBR ran a set of economic models to take account of the influence of rising incomes, changes in savings behaviour, changing unemployment trends and movements in interest rates.

The models incorporate only a modest rise in UK base interest rates by the end of the year to 4½ percent - less than many commentators expect. One of the reasons for this is that the CEBR expects disposable income (after taxes and mortgages) to rise by only 0.7 percent this year compared with over 3 percent in 2001. At the same time they also expect a soft landing for house prices.

The result of the models show that by Q4 this year UK average house prices will be 8.7 percent higher than a year earlier. Although this is a relatively high rate of annual house price inflation, it does imply that house prices will peak in the Summer and edge down by 2 percent in the second half of the year. However, the CEBR doesn't believe that this slide will be any greater than 2 percent, therefore losing little of the value created during the past year's inflation. These forecasts are good news for UK property buyers, since they imply little risk of a serious move into negative equity despite the recent large rises in prices.

Speaking on morning television today, Douglas McWilliam, Chief Executive of the CEBR, said: "I think we will see things slowing down this year. By the summer the steam will have gone out of the market and in the second half it will probably ease backwards. However, we are not expecting a return to the boom and bust cycle of the past, rather a modest decline of up to 2 percent when the current bubble bursts. This is not going to leave people in negative equity - it is a very different scenario to that of a few years ago when prices fell 30 to 40 percent and people ended up owing more than their house was worth."