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UK House Prices Forecast 2014 to 2018 - Conclusion
Posted: 31 Dec 2013, 16:31
by Lord Beria3
http://www.marketoracle.co.uk/Article43771.html
This forecast is based on the non seasonally adjusted Halifax House prices index that I have been tracking for over 25 years. The current house prices index for November 2013 is 174,671, with the starting point for the house prices forecast being my interim forecast as of July 2013 and its existing trend forecast into Mid 2014 of 187,000. Therefore this house prices forecast seeks to extend the existing forecast from Mid 2014 into the end of 2018 i.e. for 5 full years forward.
My concluding UK house prices forecast is for the Halifax NSA house prices index to target a trend to an average price of £270,600 by the end of 2018 which represents a 55% price rise on the most recent Halifax house prices data £174,671, that will make the the great bear market of 2008-2009 appear as a mere blip on the charts.
mainstream Press Forecasts
Many academics and 'think' tanks that get reported upon in the mainstream press have been busy during the past few weeks up-grading their house price forecasts AFTER the recent surge higher, whilst most play it safe by just focusing on year ahead a few have looked 5 years ahead that typically still play it safe as they range in expectations for a rise in UK house prices of between 17% to 25% over the next 5 years -
CBRE - 17% Rise by 2018 - Commercial property consultants (CBRE).
OBR - 20% Rise by end of 2018 - The governments think tank (Telegraph).
Knight Frank - 24% rise by end of 2018 - A global real estate consultancy (KnightNox).
Savills - 25% rise by end of 2018 (up-rated from 18% a few months ago)- LSE listed Estate agent, whilst the most bullish but still playing it safe (Telegraph).
Main Risk to the Forecast - INFLATION
The primary risk to the forecast is inflation, whilst I don't expect low inflation to significantly impact the forecast however high inflation as manifested by a a persistent rate of more than 5% per annum will effect the forecast. Given the leveraged nature of house prices to inflation therefore this would roughly translate into the expectation that for every 1% that UK inflation stays above 5% then house prices will rise by an additional 2%. For instance if UK inflation spends several months at 7% then house prices will rise by an additional 4% per year. Though on the downside in terms of house prices, a soaring UK inflation rate will also hasten an END to the housing bull market as the Bank of England will once more panic to prevent a wage price spiral by raising interest rates to MORE than the rate of inflation which would act to seriously erode housing market sentiment towards a sub RPI-inflation annual house price inflation rate.
The man certainly has balls to come up with such a bullish forecast which is way outside the consensus. Interesting to see if his predictions come true in the next five years.
If they do, then homeowners will be laughing!
Re: UK House Prices Forecast 2014 to 2018 - Conclusion
Posted: 31 Dec 2013, 17:01
by UndercoverElephant
Lord Beria3 wrote:
If they do, then homeowners will be laughing!
And everybody else will be utterly f***ed. Super!
Provided QE and ZIRP continue, house prices really can only go up. The moment they cease, house prices will crash. So the million dollar question(s) is/are when will interest rates go up and when will the BoE stop buying government debt via QE.
Posted: 31 Dec 2013, 17:43
by raspberry-blower
Deja vu
House prices going up until only the super wealthy can afford a glorified broom cupboard in Surbiton - great!
Base rates and QE are long term policies - part of the post Peak Oil economy. There isn't the economic activity to support the growth - along with the fact that banks are laden with off balance derivatives that could go pop at any moment. These derivatives will cause the next crash - just like the last.
This is a good reminder of what happened last time
RIP John Fortune
Posted: 31 Dec 2013, 19:00
by biffvernon
Brilliant
But on the question of only the super wealthy affording glorified broom cupboards in Surbiton, to at least a first approximation, the number of houses and the number of people is not very volatile so fluctuations in house prices does not immediately correlate numbers of people not living in houses.
In fact there's been a long-term trend towards a higher house space per person ratio. This has probably taken a wobble in the last five years but I don't see a significant reversal of the trend emerging yet.
Re: UK House Prices Forecast 2014 to 2018 - Conclusion
Posted: 31 Dec 2013, 23:38
by clv101
Lord Beria3 wrote:If they do, then homeowners will be laughing!
Will they? Most people on the housing 'ladder' aspire to own a better house in the future, their current £150k house goes up 20% (+£30k), but their aspirational £250k house goes up 20% (+£50k), leaving them with an additional £20k to find than if there had been no house price inflation at all.
House price inflation only really benefits those downsizing, emigrating, selling 2nd+ houses etc... it does not obviously benefit the average homeowner who intends to remain a homeowner.
Posted: 01 Jan 2014, 08:08
by lancasterlad
Just wait until interest rates go up. There will be a lot of homeowners who won't be able to meet their debts. Oh, and also a government that can't meet their debts.
Posted: 01 Jan 2014, 10:59
by woodburner
No problem, the government will just accelerate inflation so peoples savings vanish. Brilliant, no more debt.
Posted: 01 Jan 2014, 11:33
by cubes
This is completely laughable. As said above, those 'upgrading' their house will have to find more money - without salaries keeping up with HPI and interests rates returning to normal levels will wipe out 10% of homeowners or more for similar reasons.
Posted: 01 Jan 2014, 15:18
by biffvernon
cubes wrote: will wipe out 10% of homeowners or more for similar reasons.
Ok, but just what does 'wipe out' mean? Would 10% of (ex-)homeowners be on the street while 10% of houses would be empty, earning no rent or mortgage repayments?
Or is the number of people in this position too big too fail?
Posted: 01 Jan 2014, 15:57
by RenewableCandy
That last is a good question. Shelter do figures of the "hidden homeless", I don't know what te totals are.
I think the over-all effect will be to transfer housing stock ownership to the banks. Then when the values go down (because of unemployment, low wages or whatever) HMG will probably try and find some way to bale them out of this, and it probably won't help ordinary people.
However the fact that these days on the whole the Great British Public are paying off mortgages, rather than borrowing more on them, shows, if you ask me, that the said Great British Public, or at least the homeowning section thereof, are cottonning on.
Posted: 01 Jan 2014, 18:46
by woodburner
If you ask me, it's taht the are up to their eyeballs and cannot borrow any more.
Posted: 01 Jan 2014, 19:41
by cubes
biffvernon wrote:cubes wrote: will wipe out 10% of homeowners or more for similar reasons.
Ok, but just what does 'wipe out' mean? Would 10% of (ex-)homeowners be on the street while 10% of houses would be empty, earning no rent or mortgage repayments?
Or is the number of people in this position too big too fail?
In this context 'wipe out' means homes repossessed (as I'm sure you figured out for yourself). Which usually means no other assets worth a damn are left either.
Nothing should be too big to fail imo, but politicians think more about the next election and their financial backers than what's best for the country.
It may be possible for people to surrender their homes to the state, who would pay off the mortgage and then rent it back to them. Although I'm not sure how they could afford to pay rent if they couldn't afford to pay the mortgage.
Posted: 01 Jan 2014, 20:14
by biffvernon
Yes, but my point is that it would be politically (and economically) impossible to have 10% of homeowners, their houses repossessed and sleeping on the street while their houses stood empty.
It's no consolation to the individual caught at the margin, but if 2 million homeowners can no longer afford their homes then a combination of market and political forces will shift such that they can continue to afford them. House prices and/or interest rates will fall.
Posted: 01 Jan 2014, 21:15
by fuzzy
biffvernon wrote:Yes, but my point is that it would be politically (and economically) impossible to have 10% of homeowners, their houses repossessed and sleeping on the street while their houses stood empty.
It's no consolation to the individual caught at the margin, but if 2 million homeowners can no longer afford their homes then a combination of market and political forces will shift such that they can continue to afford them. House prices and/or interest rates will fall.
If house prices fall faster than 1.2% per year, then the value of a house is decreasing faster than you are repaying the loan on a 25 year mortgage - unless you are overpaying. This means the banks are less solvent. Theoretically they will ask the homeowner to stump up a chunk of repayment to cover the risk, but in todays house of cards maybe they don't. As to the individual homeowners, if house prices fall faster than they are repaying, then there is a decreasing chance they will ever be able to move and the 2nd level of house ownership and above will slow even more. Personally, I wouldn't be suprised if banks are already renting repossessed property anonymously via letting agents.
Posted: 01 Jan 2014, 22:00
by UndercoverElephant
biffvernon wrote:Yes, but my point is that it would be politically (and economically) impossible to have 10% of homeowners, their houses repossessed and sleeping on the street while their houses stood empty.
Why would their houses stand empty? Repossessed houses are sold - and very quickly, usually. There is no point in repossessing a house if you are going to leave it standing empty.
It's no consolation to the individual caught at the margin, but if 2 million homeowners can no longer afford their homes then a combination of market and political forces will shift such that they can continue to afford them. House prices and/or interest rates will fall.
Interest rates can't fall below zero.