Is predicting a crash arrogant? One Fool tells you what he thinks, and gives you some useful predictions of his own.
The Fool community sure knows how to analyse hard.
It looks at numbers, furrows its brow and unconsciously tugs the flappy bits on its jester's hat in concentration. Finally, it sits back with a gentle tinkle and sighs with contentment at a job well done. More money saved or earned!
But, analysis can go too far. You can surround yourself in data until it all seems to make sense. Problem is, when it comes to big things like the property market, there's so much of it. (Data, that is.)
How do you know which data are relevant, or most important? Historical house-price data? Projected house prices? Immigration figures? Buy-to-let numbers? Mortgage affordability? The savings ratio? Number of households? Unemployment? Mortgage arrears? UK inflation? Global inflation...?
What's more, how do you know you haven't missed something? Or that you've dismissed something that turned out to be important. And let's not forget that data can all be scrambled up by the panicking, or jubilant, masses.
Put in another, less-tongue-twistery way, I firmly believe that there is an arrogance to calling the property market over short periods of time, because there are an overwhelming number of factors that can affect it.
Or perhaps you all think that I'm arrogant to think that it can't be predicted, when everyone else thinks that it can!
I say: don't try and predict something if you just don't know. You don't know what's going to happen to the market in a year's time. Don't speculate. Don't gamble and over-analyse. This is your home we're talking about!
Instead, consider what you actually know, and make predictions based on that. From those predictions, you can make useful decisions with a hell of a lot less angst.
The housing market: is it going to crash soon?
As I've been saying, this is not a prediction you can make, because you just don't know. The governor of The Bank of England himself has said that no one, including him, can predict what's going to happen to the property market in the short term.
Cliff D'Arcy included some fascinating statistics at the start of his article: Five Property Warning Signs To Watch. They show that Halifax and Nationwide (which both run house-price indices) have consistently dramatically failed to predict future house prices.
So what do we know?
We know firstly that the property market goes both up and down. We also know (or we're very confident indeed) that over the long term the market will go up, despite the down points.
We can use this knowledge, because it shows us that buying a property at any time makes sense if we are willing and able to buy for the long-term.
Furthermore, as we know that we don't know when a crash is imminent, it means that timing your entry to the market (i.e. trying to guess a good time to buy) doesn't make any sense either. Meaning, stop dawdling and get on the ladder!
Related issues
That said, you still must consider affordability. From here, predictions get much more simple, as you've got over the idea of predicting the market, and you can work on the facts.
You just add up all the costs and your other outgoings and compare them with your income. You then think about whether you could still afford the property if interest rates go up a point or two. Then you can pretty confidently predict that, if you buy, you'll safely be able to afford your property in the years ahead. If the figures don't add up, then don't buy. Simple.
Finally, buying instead of renting is a no-brainer for most people. After (probably) 25 years you can fairly safely predict that you'll have no more housing bills (i.e. rent or mortgage) to pay for the rest of your life. Those are the kinds of predictions I like!
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