Monday 27 December 2010

Uk House Prices look grim in 2011

The latest news on UK House Price moves suggests that 2011 will be a grim year for prices in this market. Already they have been falling for 6 straight months. This is on the back of a quantitatively eased economy to the tune of £200 billion and also low interest rates of 0.5%.

OK, so the UK banks are not that interested in lending to consumers at anything other than egregious rates anymore, but still, that is some market support. Instead the market continues to weaken. In 2011 there is no way the UK is not going to at least double its interest rates (saying UK interest rates to move up 0.5% is pretty conservative though, isn't it?).

The market continues to be a phoney market. People can afford their mortgages, they don;t want to sell at reduced prices, so prices stay high and demand is held down too by the lack of mortgage availability.

So in 2011 this position will being to unwind and prices are only going to head lower, possibly as much as 10%; and this will not take into account inflation of say 5% so that real prices will be down something like 15%.  This is a good thing overall for our property enthusiastic economy, less so specifically, for those hoping to trade down to buy a pension. I won't be buying any resi property shares like Taylor Wimpey next year either.


Mark Wadsworth said...

Your forecast, if correct, is rather splendid.

Don't forget the basic rule:

High house prices = bad for economy
Low house prices = good for economy

Electro-Kevin said...

MW - I thought 'house prices' WERE the economy !

KoR said...

Much the same as my own prognosis. I won't be buying any TW either -- I already have some :-(.

Old BE said...

I'm not sure why the position of a shortage of sellers would unwind if the market falls as continuously as you predict. Why would people suddenly decide to give up waiting and sell their homes at a loss rather than hold on? Unless they have to, obviously.

I am also not as pessimistic about the "real" economy as you obviously are. Inflation will fall, rates won't rise very far and we will start to see steady if not spectacular growth based on innovation, manufacturing and public sector retrencment.

Electro-Kevin said...

Blue - people in my vicinity are already innovating to diversify income streams.

The Net can be a wonderful thing for independance and may add a new dimension to recovery.

Thud said...

I'm with blues on this if only to go against the commentators on numerous boards banging on about gold and world collapse...give it a rest will you and get back to who shot jfk and 9/11

andrew said...

This graph is quite interesting.


Looking at it, a 15% real fall does not look out of the question.

Personally, I don't think it will be that much and there will be sharp regional variations.

I think London, places where you retire to (Dorset) will carry on.
I think Parts of the north where many jobs are provided by the Govt, and the less scenic rural areas will suffer disproportionately.

It all depends where TW's landbank and near-term projects are.

Steven_L said...

BE - if you look at the coalitions plan (£200bn public infrastructure plan, up to £550bn 'green' investment bank) you can hardly say they are planning 'public sector retrenchment'.

Whether you like it or not you are entering a global era of more government and central bank intervention in markets, and need to invest accordingly.

I think prices in the south east will hold up, and all the places that depend on transfer payments for jobs will slump more.

Woodsy42 said...

Interest rates are only one factor, and not even the most important one. Up here in the midlands small starter houses are affordable but people cannot get a mortgage because banks are demanding unrealistic deposits. Plus charging interest way above the official rate.
I currently know two sets of youngish people who are desperate to buy a house because 1) a mortgage would be considerably less than the rent they are currently paying and 2) they can't choose the decor or even put up a shelf in a rented house, so it never feels like a home and 3) they lack security.
A small interest rate change doesn't tip the balance.

CityUnslicker said...

Thanks all, I am not that pessimistic about the UK next year, but there is going ot be a big shock when the Euro gets tested by the Spanish crisis. This is simply a nailed on certainty for Q1.

It will also be a missive buying opportunity for many shares, but that is for another post.

BE - People have to sell if their repayments get higher that is why, so your point is correct. it is coercion.

Woodsy- Welcome, this is the a fair point, but the lack of mortgage availability is not going to end any time soon. The financial crisis has realy nailed our main suppliers and there are a myriad of threatened new regulations which will stop new entrants.