The subject of house prices is a tricky one for most predictors, as a recent report by the Intermediary Mortgage Lenders Association (IMLA) proved.
It claimed that ‘market predictions for 2008 need a dose of realism’ and that ‘many 2008 forecasts are not taking into account the fact that house prices are currently balancing on a knife edge’.
Momentum fading?
Things have been further shaken up by the publication of Nationwide’s house price forecast for 2008, which suggested that house price growth was to pause for breath next year, and that house price inflation would drop from its current rate of 9.7 per cent to zero per cent by the end of 2008.
Fionnuala Earley, Nationwide’s chief economist, said: “We forecast house price growth of 5-8 per cent in December last year, and with two months left to go, it looks like the middle to upper end of this range will be achieved.
That being said, momentum is now fading, and a number of factors suggest that house price inflation will drop from its current rate of 9.7 per cent to zero per cent by this time next year.”
However Stuart Law, chief executive of Assetz, commented: “Nationwide, like most building societies, tends to significantly underestimate house price inflation at the beginning of each year.
Next year appears to be no different, with today’s prediction of zero per cent. In contrast, I would expect house prices to increase by 5 per cent in 2008.”
Meanwhile Robert Bryant-Pearson, chief executive of Allied Surveyors, said: “A drop in house price inflation to zero per cent by this time next year seems pessimistic. However, we are likely to see significant falls in house price growth for particular house types and locations over the coming year.
"The likelihood is that city bonuses will not be as high as they have been in previous years, therefore many large country properties may see a fall in demand and, therefore, a decrease in value.”
Where will the market go?
Once again we are thrown back into a debate about where the market will go. Although there is a general feeling that there will be a drop in Base Rate, particularly given that the Bank’s recent quarterly inflation report forecast that the economy would slow in 2008 and inflation would accelerate. Analysts have responded to this by claiming that a drop in rates is likely.
David Austin, managing director of Property for Life, said: “The Bank’s signal that rates will be on their way back down early next year will help to fuel this market. Investors have every reason to be confident in the long-term returns of buy-to-let.”
With a slower economy predicted, and borrowers stretched under tighter credit conditions, the level of activity has been forecasted to be slower next year. Earley said: “We expect economic growth to fall below 2 per cent next year, from over 3 per cent in 2007. As signalled in the November inflation report, this leaves room for the Bank to reduce rates by 50 or 75 basis points by the end of 2008.
“A cut would clearly be a relief to many, but rates would still be higher than when they started rising in 2006. On balance, the economic background will not be as supportive of house price growth expectations.”
So while there is indecision, there is also confusion. Is this perhaps a call for a straight line to be drawn through forecasts in order to ensure consistency? This is unlikely when you consider that the major lenders do their own forecasting, and the results will be based upon their own experiences.
Despite this, there is no shortage of prediction and despite the variations in statistics ,the general consensus does seem that there is consistency within the opinions. Whether or not there is a Base Rate cut is to be seen, and how house price inflation will counter can only be judged as the months go by.
One thing is for sure though, without a crystal ball or the use of a time machine, the future predictions can only be assumed.
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