I’ve been paying particular attention to the property market lately, largely because I’m thinking of leaving London in pursuit of fresh air and a garden. Having come to the conclusion that prices will probably be flat, at best, for several years, I was gobsmacked to read the newspaper headline “house prices set to soar” at the weekend.
The source of this optimistic prediction is the Centre for Economic & Business Research (CEBR). CEBR predicts that thanks to low interest rates UK house prices will rise by an average 5.3% this year, 3.4% in 2011 and 9% in 2012. In other words, they predict a property worth £200,000 today will be worth an average £237,358 by the end of 2012.
Now while I share CEBR’s view that interest rates will remain low for some time yet, I’m struggling to understand how on earth they can believe prices will rise by this extent. Perhaps CEBR and I are on different planets – in my world our economy remains on the cusp of recession and we’re staring significant tax rises and spending cuts in the face – neither likely to be that helpful for house prices.
Average house prices have, depending on which figures you use, risen by around 10% over the last year. But, this seems to be more due to a shortage of sellers than an overwhelming increase in demand (i.e. there’s so little decent property on the market buyers are fighting over it). Land Registry figures show that 608,528 properties were sold during 2009, just under half the 1.23 million sold during 2007. And although the latest published figures for January 2010 show a definite increase on last year at 34,171 versus 26,208, it’s still a long way short of the 87,685 homes sold in January 2007.
Why are property sales down? I’d guess the uncertain outlook along with rising unemployment and the difficulty in getting a mortgage have deterred both first-time buyers and those already on the property ladder from moving. Of these factors I doubt the first two will change in the near future. And despite lots of political promises to get banks lending again, credit is still quite difficult to come by – I’m not convinced this will change in the near term either.
The only way I can see house prices continue to rise in this climate is if the number of sellers remains low and more buyers enter the market. I’m sure sellers will remain low in so far as many will be holding off in the vain hope that prices return to pre-credit crunch levels. But I’m not convinced buyers will return in sufficient volumes for the reasons mentioned above. Plus many buyers will in turn be selling a property, which increases the number of sellers and is more likely to soften prices than push them up.
Maybe I’ve got this wrong (in which case please tell me below), but I just can’t see property prices rising by much, if anything, over the next five years. If sustained economic recovery does occur, and it’s a big if, then interest rates will probably rise and put a natural lid on the housing market anyway by increasing the cost of borrowing.
Right, back to decorating my flat so I can get it on the market...