Although figures from major lenders like Nationwide and Halifax continue to underpin general confidence in the property market, a strange air of uncertainty overhangs house prices in many areas.

Properties which are not selling are starting to look decidedly over-priced. But below £500,000, vendors seem most reluctant to knock off more than the occasional £5,000 or £10,000 in the hunt for suddenly elusive buyers.

According to analysts at Capital Economics, however, the `sit tight and wait' strategy could backfire. As reported in the subscription-only monthly journal Residential Property Report, their findings suggest prices could fall significantly in 2004 - so it makes sense to secure a sale in 2003.

Says Sabina Kalyan at Capital Economics: "On one measure of affordability in the housing market - the house-price-to-earnings (HPE) ratio - houses now look as over-valued as they were at the peak of the late-1980s boom. In three previous housing market cycles, whenever HPE has risen this high, house price inflation has fallen back sharply.

"To our mind, this is a potent warning of housing market mayhem."

Of course, many observers argue larger mortgage loans are perfectly acceptable in a low inflation environment. With so many two-income households, job losses should not trigger a re-run of the havoc of the early Nineties.

But the Capital Economics team is not convinced.

Says Sabina Kalyan: "While nominal mortgage rates are indeed low, real post-tax mortgage rates - that is, the cost of borrowing once inflation and abolition of mortgage interest tax relief are taken into account - are not that much lower than in the 1990s and 1980s.

Capital also rejects the idea that prices are rising because the output of new properties is so low.

Even if output doubled, it argues, new homes form such a small part of the overall market that their impact on price levels is minimal.

This point, I believe, is debatable: new house sales, around 150,000, make up more than 10% of the total market. And prices charged by developers certainly push up values in surrounding streets.

However Capital Economics may have a point when it warns: "We do not believe that there is a `magic floor' of 0% house price inflation, as the Bank of England might have us believe.

"To our mind, if house-price inflation were to fall back to zero, this would already seem like a sharp slowdown to consumers, and with consumer confidence so badly damaged, potential buyers would be warned off the market, allowing house prices to fall.

"With inflation now running at a lower level than in the 1970s and 1980s, the burden of adjustment in the market is far more likely to be observed in falls in nominal house prices."

Apocalpyse for homeowners may not be imminent. But there is growing sense we are entering uncharted waters, so far as housing markets are concerned.

Says the latest quarterly bulletin from brokers Prudential-Bache: "We assume housing markets will not collapse in dramatic fashion. Indeed we expect them to subside slowly under their own weight.

"This will be a new experience in one's lifetime - always previously the factor behind a soft housing market has been high interest rates.

"This time, it is quite simply that many buyers are now borrowed out. However, house prices cannot be allowed to collapse, because of their importance to consumer spending.

"We therefore expect interest rates to continue falling, to extremely low levels."

Economists and politicians, of course, don't always get it right.

In spite of - perhaps because of - their best efforts, my bet is that nervousness and uncertainty will overhang the market for the rest of this year and probably well into next.

*The latest consumer confidence survey from The Woolwich, Britain's fourth largest lender, claims that confidence in the housing market increased `slightly' over the last three months, since the end of the Iraq War.

HARBOUR COTTAGE UNDER HAMMER

A two bedroomed cottage needing refurbishment overlooking Weymouth Harbour in Dorset, and an old tumbledown coach house ripe for conversion on the edge of Dartmoor in Devon are star items in the next Countrywide auction in London on July 10.

The brochure suggests many vendors could be tiring of waiting for buyers on the open market. There's a 163,000-£175,000 guide on the Weymouth cottage - while the old coach house on Dartmoor is expected to fetch over £325,000.

Expect keen interest, too, in the two bedroomed second floor flat enjoying superb sea views over Lyme Bay at Seaton, in Devon: a snip, surely, anywhere near the £95,000-105,000 guide price.

Given the reported intention of authorities in Nottingham to put some controls on the provision of student housing in the city, bolder souls might also chase the two bedroomed terraced house in the troubled St Anne's district, with a £25,000 guide in Countrywide's sale in Birmingham on July 11.

Countrywide sales are in London (July 10); Birmingham (July 11); and Haydock Park, Newton-le-Willows, Merseyside (July 16). Catalogue request line (charged at £1 50p per minute): 0906 666 2468.

WILL MAYOR KEN DELIVER PRICE BOOST?

You would have to go back a long way in property records to find when areas like Thamesmead, Beckton and East Ham - east of London on either side of the Thames Estuary - were last tipped as property `hotspots`.

But it happened the other day when East London agents Douglas Allen and Spiro weighed up the implications of the proposed Thames Gateway Bridge between Thamesmead and Beckton - on which London Mayor, Ken Livingstone, is inviting public debate.

Says Brian Dillon: "Based at East Ham office, we see a great advantage in the bridge, not least because it will make life easier for residents and will also raise the value of their homes. It could help to promote a boom once a firm decision is made."

Two bedroomed houses in these parts, says the agents, currently change hands for £135,000-145,000. What a bargain they would look if the area really did lift off.

Gamblers might also reckon that chances of the bridge are fairly high; the Government is desperate to show that the billions of pounds of public spending is achieving something tangible, and an elegant bridge to tackle chronic traffic congestion on the south-east side of the capital could be just the job.

It would also ease pressures on the Dartford Crossing - and send out a message that the Government revival plans for the Thames Gateway are action, rather than words.

BUY TO LET CONTINUES TO PAY UP, SAYS LENDER

According to Paragon Mortgages, the specialist buy-to-let lender, landlords continue to enjoy yields of just under 8% - way ahead of returns on any other investment.

Across England and Wales, claims Paragon, rental incomes during May rose from £8,742 to £8,930 per year, and property values climbed from £109,669 to £111,972.

Best yields are on properties in cheapest areas - notably Yorkshire (average price £56,937) and the North (£53,010). East Midlands is another lucrative place to invest.

Terraced properties produce the best yield, says Paragon - while returns on detached houses, traditionally low, are picking up.

Though the figures look good, I have to say that they are rather more impressive than the returns I currently enjoy as a buy to let landlord myself in Southern England. Maybe I am just having a bad run.