Julian Knight: Predicting house prices? It's like herding cats

Sunday 03 January 2010 01:00

Apparently, I don't make "good" radio. I had a call from a radio station and was asked the question I always get asked at every dinner party as soon as the guests find out what I do: "What will happen to house prices?" The presenters could barely disguise their disappointment that I turned out to be that most annoying of guests – a "fence sitter". After all, in TV and radioland, people are only supposed to lay out arguments in black and white rather than shades of grey. Nuance equates to indecisiveness.

Perhaps I should pretend that I'm in the know about some impending crash which will make the falls of 2008 look like a gentle warm-up for the main event, even that I have taken the radical step of "selling to rent", in the hope of buying some stellar property once everyone else has been thrown out on the street.

On the flip side, perhaps I should be the arch optimist, able to reassure whoever is asking that the predictions of a crash have been shown – by the past eight months' price rises – to be rubbish. Our great property-owning democracy is still on the wheels, credit crunch or no credit crunch. Perhaps it doesn't matter what I say as long as I shout it into the microphone and end with a nice sound bite.

If I wanted to be a bull, I could mention the long-term issues of rising population and limited space in the South-east, and how this will underpin property prices. How we are gradually paying back our debts ready to gear up again for another market take-off. The past six months' growth in prices has taken many by surprise but shows the undeniably – almost guttural – demand for property amongst Britons. Priced out of home ownership, any idea that we will become a nation of happy renters – like the French or Germans – is a fallacy. For many (admittedly this is an insecure view) being a renter in your 30s and 40s is akin to admitting that you're failing in the big rat race of life.

Add to this interest rates, which are low and likely to remain so throughout 2010, and property transactions beginning to rise towards their historic average, and the short term doesn't look as bad as it did, and long term it's a sure fire bet.

The bearish view is that we are still in a hell of a mess. Mortgage finance is still tight which precludes most would-be first-time buyers. Unemployment is rising; public-sector spending cuts – akin to Ireland's recent austerity budget – are not only necessary but will be unavoidable once the money markets have their way post-election. Taxes will rise substantially for everyone (and not just, as Gordon Brown would have you believe, for the rich).

Against this, the agreement between the lenders and the Government to hold back on repossessions may not hold up as banks desperately grab what they can out of the wreckage. Also, although the London market is supported by foreign speculators – this is only temporary, and outside the capital the market is still, even now, dead. Basically, the long-term market props – rising population and limited space – don't apply anywhere outside the South-east.

The slick PR from London estate agents about how well they are doing will ring very hollow for many thousands trying to sell at what they think is a fair price outside the South-east. Prices raced away from real incomes far further in the North than in the South, and so the correction will be more painful and prolonged – perhaps lasting a decade or longer – there.

I'm more a bear than a bull, but as for calling the property market in 2010 and beyond, it's as difficult as herding cats. As for the professional forecasters, I can count on the fingers of one hand how many times they have called the market right even in simple terms of whether prices will fall or rise. And when they do I'm reminded of the quote from the seminal British film Withnail & I that "even a stopped clock tells the right time twice a day". The only remarkable thing about house-price forecasts is that they are so often wrong. So what do the market sages say at the start of the new decade?

Out of 14 house-price forecasts for 2010, nine predict falls while five suggest rises – but it might as well be the other way around, or 14:0 in favour of a price rise or fall. It doesn't really matter, it's all guesswork.

Ultimately, all you can do is be aware of the factors at play and make your moves according to your own personal and family circumstances – in effect, don't try and second guess the market. Hmm ... I think I can see why I don't make "good" radio.

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