2010 House Price Forecast + 5% to +10%....

HAMISH_MCTAVISH

The housing market was dead: to begin with. There is no doubt whatever about that. The housing market was as dead as a doornail. That may be an exaggeration, but, this time last year, the Ghost of Christmas Past was plainly visible in the UK housing market. Economists were reading the last rites, as the fall in activity and prices, which had started with the onset of the credit crunch late in the summer of 2007, continued remorselessly throughout 2008 and into the early months of 2009.

At the low point, mortgage approvals for new house purchase had fallen from a peak of 130,000 a month to only 27,000. Mortgage borrowing, which was more than £113 billion in the year before the credit crunch, was less than £10 billion two years later. As the supply of mortgage finance dried up, there was only one way for prices to go. On both the Halifax and the Nationwide measures, prices fell by 16 per cent in 2008. They continued falling in the early months of 2009, at which point the consensus was forecasting another 10 per cent fall in 2009.

Since then, and against most economists’ expectations, almost every housing market indicator has turned up. Mortgage approvals have more than doubled from the low point (though net mortgage borrowing remains very subdued) and prices have recouped about a third of their previous losses. On the Halifax and the Nationwide measures, prices are set to rise by about 5 per cent this year (December/December).

It is a similar story on the “distress” statistics. Arrears and possessions are rising, but at nothing like the rate previously expected. Equally, and again in contrast to lenders’ expectations, the Bank of England’s most recent Credit Conditions Survey reports a drop in the default rate and the loss given default rate on secured loans to households.



Why, in defiance of economists’ expectations, has the housing market recovered, and will it continue? To answer these questions, we need to understand why the market collapsed in the first place.

Ahead of the onset of the credit crunch in August 2007, there were plenty of doom and gloom forecasts for the housing market. House prices were said to be overvalued — by as much as 50 per cent relative to earnings on some estimates — bolstered by exuberant lending practices, which had created a “bubble” in house prices. At some stage, the bubble would burst and prices would tumble.

Even though there were few obvious signs of stress in the UK housing market, these dire forecasts duly came about as the credit crunch removed cheap sources of finance from those lenders hitherto reliant on the wholesale markets to fund the bulk of their lending. But, unlike the early 1990s, when 15 per cent interest rates and three million unemployed choked off demand and initiated a wave of “forced selling”, it was the sudden non-availability of mortgage finance and the move to more prudent lending practices that put the spanner in the works. In a fundamental sense, demand did not disappear, but was put on hold by an abrupt change in lending conditions.

Slowly, but surely, over the past year, lending conditions have eased. At the same time demand has recovered as would-be borrowers have saved up the bigger deposits now required and the weakness of sterling, particularly against the euro, has attracted overseas cash buyers to the London housing market. With the supply of houses coming on to the market still relatively subdued, this has been sufficient to allow some recovery in house prices. The Ghost of Christmas Present tells us that there does not have to be a boom in activity for prices to rise; all that is required is for supply to remain relatively light in relation to demand.

The doomsayers’ response is “Bah, humbug”. Demand will fall back, hit by the end of the stamp duty holiday, rising unemployment and, eventually, a squeeze on incomes as taxes are raised to tackle the hole in the public finances. On the other side of the equation, supply will rise, exacerbating an emerging supply-demand imbalance.

Just as the Commentariat failed to see the recovery in prices that has taken place over the past six to nine months, it remains in denial about the coming 12 months. The backdrop is improving, with the economy moving out of recession and the labour market beginning to turn. Unemployment may have farther to rise, but the 850,000 that it has already risen has not prevented the housing market from recovering.
Similarly, without the “forced selling” phenomenon of the 1990s, the supply of housing coming on to the market is unlikely to outstrip demand.

There is something fundamentally perverse in the argument that we will somehow want to put our houses up for sale in a falling market. This happens only in extremis; in more normal times, we have the option of just staying put. In fact, for many households on a tracker mortgage, there is no realistic option but to stay put, since moving would entail a much higher borrowing cost.

The British have a longstanding love-affair with housing. As a vehicle for saving, it has served us well over a long period of time. In a small, crowded, island, where household formation is swollen by our own demographics, inward migration and the trend to more, smaller, households, and where planning always acts as a constraint on new development, it is likely to continue to do so.

So, like Dickens’s story of Scrooge, this one has a happy ending. Tiny Tim and the United Kingdom's housing market will live to fight another day. The Ghost of Christmas Yet to Come tells us that the recovery in house prices, which started last spring, has farther to run. In 2010 the market will be supported by recovery in the real economy, some further easing of mortgage availability and historically low interest rates. Prices are far more likely to rise by another 5 to 10 per cent in 2010 than to slump back, as so much of the Commentariat seems to believe. For that, as Tiny Tim said, God bless us, every one.

• Geoffrey Dicks is chief economist of Novus Capital Markets, a member of The Times MPC and a member of the International Dickens Fellowship

http://www.timesonline.co.uk/tol/comment/columnists/article6963500.ece

What more can I say..... Perfectly encapsulates the arguments those of a more positive disposition have been making all year, and we have been right so far.

I think he's got it about right for the 2010 forecast here.

I'd be happy to hear any well reasoned argument to the contrary, but other than the usual (and already proven wrong) hpc soundbites, we just don't seem to get one....

So lets use this thread as the MSE 2010 house price forecast thread, post your forecast and reasoning why.

:beer:

abaxas

Great news!

Maybe we should introduce healthcare rashoning for the young too. Dont want to give them the same as the older generations, that's fair and we dont want that.

HAMISH_MCTAVISH

abaxas wrote: »

Great news!

Maybe we should introduce healthcare rashoning for the young too. Dont want to give them the same as the older generations, that's fair and we dont want that.

Perhaps if the younger generation could spell "rationing", they would not have such a problem earning enough to afford a house....:rolleyes:

Beyond that, most of the posters here in favour of lower prices just seem to proclaim "it's not fair"..... Which it may well not be, but life rarely is.

Wishing for something to be so, in no way makes it more likely to happen. Show me a reasoned argument for what the mechanism will be to lower house prices, and I may take the prospect more seriously.

Graham_Devon

HAMISH_MCTAVISH wrote: »

What more can I say.....

No comment

Perfectly encapsulates the arguments those of a more positive disposition have been making all year, and we have been right so far.

I'm sorry?

All this year you have been saying prices will drop back? When called a bull, you have turned round and said you are actually a bear in the short term.

Now, you claim you are right that it will go up in the short term.

What are you actually saying Hamish?

Are they going to fall which you keep saying and calling yourself a bear in the short term.

Or are they going to rise, as you are saying now and claiming you are right?

HAMISH_MCTAVISH

Graham_Devon wrote: »

No comment

I'm sorry?

All this year you have been saying prices will drop back? When called a bull, you have turned round and said you are actually a bear in the short term.

Now, you claim you are right that it will go up in the short term.

What are you actually saying Hamish?

Are they going to fall which you keep saying and calling yourself a bear in the short term.

Or are they going to rise, as you are saying now and claiming you are right?

"Oh look, a shiny thing."

No, I still believe prices will drop back a bit over this winter, just by a small amount. But if I'm wrong about that, I would be delighted.

That forecast is for next year, and involves ending the year higher than it begins.

I know you struggle with reading comprehension, but stop trying to derail the thread into an Alternative Devonian Reality, and just debate the topic at hand.

Graham_Devon

HAMISH_MCTAVISH wrote: »

"Oh look, a shiny thing."

No, I still believe prices will drop back a bit over this winter, just by a small amount. But if I'm wrong about that, I would be delighted.

That forecast is for next year, and involves ending the year higher than it begins.

I know you struggle with reading comprehension, but stop trying to derail the thread into an Alternative Devonian Reality, and just debate the topic at hand.

LOL, throw as much fluff around as you like. "Next year" is about 10 days away

You can't seriously come on here and tell us all you were correct in a self congratulations post, and then try and tell me I'm derailing the thread because I have picked up how correct you were in everything else you said which goes totally against what you are now saying.

HAMISH_MCTAVISH

Graham_Devon wrote: »

LOL, throw as much fluff around as you like. "Next year" is about 10 days away

You can't seriously come on here and tell us all you were correct in a self congratulations post, and then try and tell me I'm derailing the thread because I have picked up how correct you were in everything else you said which goes totally against what you are now saying.

Graham, I stated the posters of a more positive position have been right this year. Which by comparison to the bears, we have been. Nobody on either side has got every single part of it right, but the bulls have been far more accurate than the bears as a rule this year.

Now did you want to debate the topic at hand? Because every time you try and derail a thread with the ad hominem attacks, it just makes you look like you don't have an argument......

Whats your forecast, and whats your reasoning?

Jonbvn

abaxas wrote: »

Great news!

Maybe we should introduce healthcare rashoning for the young too.

I can only assume that such shocking spelling is an attempt to demonstrate your chav credentials?

Are you a yuff wiff an ASBO?

System

ProTip, this winter ends around Febuary time, Hamish thinks prices will drop over the winter and rise by 5-10% by the end of next year, I fail to see how those predictions are mutually exclusive.

So perhaps we can all stick to the topic rather than abusing Hamish again, you know, as it's christmas and everything.

Personally I think they'll end up about the same, actually no I don't think anything I'm just having a guess

System

Actually I do find it sppoky that this guy is saying the exact same stuff as you Hamish, are you Geoffreys MSE alias?

bernard_shaw

HAMISH_MCTAVISH wrote: »

I'd be happy to hear any well reasoned argument to the contrary, but other than the usual (and already proven wrong) hpc soundbites, we just don't seem to get one....

So lets use this thread as the MSE 2010 house price forecast thread, post your forecast and reasoning why.

It is intuitively obvious that house prices are a product of the supply of liquidity (demand) vs. the quantity of properties for sale (supply). In the context of the special liquidity support provided to the banks this year, it is little surprise that, matched by cautious sellers who do not wish to crystallise a loss, prices have been supported this year.

The question which should exercise us is that of what happens when that liquidity support is withdrawn - a process which will definitely begin in the spring. As the provision of this liquidity support has provoked a government debt crisis which can only be solved by fiscal means, a lot depends upon what form this fiscal solution will take.

In the context of this double-whammy - withdrawal of liquidity support + fiscal pain - I wouldn't touch the housing market in 2010 with your money.

Oh, and stamp duty.

Oh, and VAT.

Oh, and history shows (as explored by Niall Ferguson in Newsweek) that, in the aftermath of dramatic increases in sovereign debt, the real interest rate always rises. We face an ongoing bonfire of the debtors right through to 2011 and beyond.

Is my spelling OK?