Average house price to hit £200,000 by 2015
One think tank reckons house prices will reach a new peak within four years
Last week Nationwide Building Society announced that house prices had fallen 0.6% in August, highlighting a sluggish demand and marginal rise in the number of available properties. Indeed, the lender’s entire house price report was fairly restrained, suggesting that prices will be stable, or perhaps fall slightly, over the rest of the year, and highlighting some of the significant issues that the housing market still faces.
So it’s somewhat surprising that a rival report has predicted house prices will see double digit growth in the next four years, taking the average property price past a whopping £200,000.
The latest forecast from the Centre for Economic and Business Research has predicted house prices will rise by a whopping 14% over the next four years, taking the average house price up to £200,700.
Brilliantly, despite such a positive prediction, the CEBR explicitly states that “We do not expect a house price boom”. So why is it so confident that prices will rise so significantly?
Four years of growth
The CEBR has revised its forecast for this year up from a fall of 1.4% to a fall of 1.3%. After this it reckons that house prices will rise gently – after all, back in May, it suggested house prices would grow by 16% over the next four years.
There are three factors behind this prediction. Let’s take a look at them and see how realistic they are.
A shortage of housing
I remember my old economics tutor drilling three words into us over and over again: supply and demand.
And that economic truism is a big factor behind the CEBR’s positive predictions for house prices (I know it’s debatable whether house prices going up can be classed as a ‘positive’ thing but for the purposes of this piece, that’s the word we’ll use).
According to the firm’s study, only 110,000 new homes will be built every year, compared to the 225,000 homes needed annually to keep pace with housing needs, population growth, and the trend towards reduced household sizes.
Last year, just 105,000 new homes were built in England, the lowest level since the 1920s. However, with the Government pledging to act on the housing shortage, there should be at least a little cause for optimism that more homes will be built than the CEBR expects. The proof will be in the pudding, though, and the fact remains that not enough homes will be built to meet the growing demand.
An increase in mortgage availability
The think tank reckons that there will be a gradual increase in the availability of mortgages. And if more people can access mortgage funding, more people will be able to compete for properties, helping to push those prices up.
It’s worth highlighting just how poor the current mortgage lending levels are. The Council of Mortgage Lenders, the trade body representing almost all UK lenders, recently increased its gross mortgage forecast for 2011 to £140bn from £135bn, which sounds great, but even £140bn is well below par in this country.
Here are the mortgage lending levels for the last few decade:
|
Year |
Gross mortgage lending total (£m) |
|
2001 |
160,123 |
|
2002 |
220,737 |
|
2003 |
277,342 |
|
2004 |
291,249 |
|
2005 |
288,280 |
|
2006 |
345,355 |
|
2007 |
362,758 |
|
2008 |
254,022 |
|
2009 |
143,276 |
|
2010 |
135,930 |
|
2011 (forecast) |
140,000 |
You could make the argument that mortgage lending can’t get much lower, and so is bound to increase over the next couple of years.
Perhaps.
But it’s important to remember that lenders are being forced to increase their capital levels by new European rules, which will restrict the amount of cash they have available to lend.
And if they can’t lend, it will become mightily difficult for potential buyers to get enough cash together for the property they want, leaving many sellers to have to consider dropping their prices. We’re already seeing signs of this – Rightmove has reported that house sellers have dropped asking prices for the second straight month, this time by 2.1% following a 1.6% fall in July.
Loose monetary policy
The CEBR reckons that base rates won’t head beyond 2% in the next four years, with mortgage rates not moving too much from current levels, and potentially even falling if there’s another period of quantitative easing.
This one is of course complete conjecture. While I don’t expect base rate to move sharply upwards, I would be somewhat surprised if it was 2% or lower in four years’ time. And with mortgage rates currently at record low levels, I’m not sure they can get much lower.
Of course, when you look beyond the headline figure, the growth predicted by the think tank is not that outrageous – it works out at an annual growth of 3.5%. However, I’d still be pretty surprised if the CEBR is proved right on its house price forecasts for the next four years.
But what do you think?
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The battle is over and the lines are now drawn. Your housing wealth is being transferred to foreign families, mainly families from Asia. Some of us wanted to transfer this wealth to young UK families - your children.
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A little over 40 years ago the UK devalued sterling by 14%. The man in the street didn’t understand and the official “pound in your pocket” mantra was widely believed. Over a short period of time, wages were “flat” and everything around had increased in price – they were all poorer. In global terms, UK house prices have crashed all over the country. A Euro buyer today has seen UK house prices fall by over 35% before negotiations, and this is the battered Euro! If you are lucky enough to be an Asian buyer, then UK house prices have lost well over 60% and it should be of no surprise that the largest buyers of London properties today are from Asia, kicking British buyers into second place. Of course the only real global comparator is gold as governments can’t debase this. In 2005 the average house in the UK could be bought for 720 ounces of gold, today this is now 140 ounces....... and falling. Some are now predicting that the average UK house will be less than 100 ounces of gold before this is all over. Crashing sterling and keeping house prices “flat” helps foreign families. Crashing UK housing and keeping sterling “flat” would have helped young UK families. I do wonder who the UK government is actually working for. Again we followed the wrong path. Why do governments do this? Because they realise that the average UK family would never really understand; and now we are all a lot poorer.
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The CEBR report is typical of the pie-in-the-sky delusion that if people want something badly enough, they're bound to get it if 'the market' is allowed to co-operate. Probably 100%, or near enough, of people have always wanted to own their own homes, free and clear, with exemption from gains tax when they sell. And no doubt they'd like a gold-plated jacuzzi thrown in. But what you covet and what the economy can afford to let you have are quite different. There is nothing written in the stars that says that a rising population can or should be so rewarded. A great secular shift is going on towards renting, on European lines, but in their myopic naivety the British 'experts' presume that 80%-plus ownership rates, with heavy debt attached, is a universal norm or sacred right-- and that we will soon be back to business as usual. This is the dullard straight-line thinking of blinkered and vested-interest types. In fact this elephantiasis of private property in the economy, like that of banksters and speculators, was an artifical creation of post-war politics: both parties sucking up to voters by rigging the game to make them heavily overborrowed masters of their domains instead of council tenants. This cannot last. Nor can the CEBR's presumption of an irresistible trend to one-person rabbit-hutch living. In fact we can already see the counter-trend (again, following continental models) of grown-up children living with their parents and paying rent, as well as friends sharing until into their thirties and even buying property together. The days of twentysomething singletons buying their second house on the way up a ladder towards a mansion are gone for good. Like 'Tell Sid', it's an outdated 1980s mania. The move away from so-called property ownership is an aspect of the wider realisation that is dawning slowly, fitfully and willy-nilly on Britons despite our masters' and media's best efforts to conceal it and keep the consumerism wheel spinning a little longer. We are bust, we are not going to go on getting effortlessly richer on paper, we are going to have to work like the devil to get us out of the hole decades of self-indulgence got us into, and we have bequeathed a rotten legacy to our children and grandchildren. So far there has been a lot of talk about austerity but it has barely bitten. But it will, and it is is going to devastate the post-Beveridge mindset. The fantasy that we can spend our working lives getting rich by ancillary gambles on our homes is only one more that must now be laid to rest.
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11 September 2011