It’s that time of year again when people who should know better challenge for the Roger Bootle house price prediction cup and set themselves up for a fall in 12 months time.
Last year I predicted sales of 1.2m (which looks like it will be about right) and house price growth of 2%. It is a struggle to find an index that would support this – most ended the year at 4-6%. The year before, like the others, I thought 4% would be right but this turned out to be a little pessimistic.
I thought that the market had peaked back in 2014 although the press really only picked up on this in the spring last year.
This year I’m at odds with more credible commentators with a prediction that prices will fall.
But why am I so pessimistic? Well, basically because everything points to things going bad from here. Money can’t get any cheaper, wages are stagnant, London – from where market changes historically ripple out is slipping, Brexit blues will dominate as we argue about how we are to unwind our arrangements with Europe and confidence will therefore lag. We’re in that phase of the cycle where people worry that what they buy today may be cheaper tomorrow so they sit on their hands.
Everyone (well Savills at least) is predicting fewer transactions which means (to me) suggests fewer discretionary buyers/sellers meaning that the majority of sales will be those who must move. There are more people who MUST sell than there are who MUST buy leaving buyers in 2017 with the whip hand. We’re also seeing more and more buyers making offers. 84% of sales last month were below the guide price, something I can’t recall every being so common. This alone suggests that sold prices are likely to fall I think.
Fewer investors will want to pay top prices. Given the risks they think they are taking and the changes coming their way they will want to feel they have a deal, won’t they? Having sunk well below the 6%+ historical floor yields have to rise and since rents can’t capital values have to fall. The impact of Government changes to the Buy-to-Let sector will start to bite and changes to fees that letting agents have been charging tenants may knock yields back further. It all adds up to achieving the Governments stated aim which was to discourage investors and free up homes for owner occupiers.
Stamp Duty – both the change made to the way it is levied made back in 2014 and the ‘2nd home’ charge brought in in April last year is having a huge impact on parts of the market but again was political move from Cameron and Osborne was designed to fundamentally change the market. We can see the impact in the 50% fall in central London transactions and the 15% fall in Chelsea prices but I can’t see Mrs May and Mr Hammond change this especially since there isn’t (yet) any evidence of an impact on Stamp Duty receipts.
I think 2017 looks really nasty. People in London I speak to will only look at buying back in once prices have fallen by 30% but remember that this would just take prices back to 2013. A 4% fall nationally would take prices back to where they were this time last year.
But it’s not all bad news. As I explained to the FT in September there will be winners and losers in 2017. The top end of the London market was fundamentally compromised by government interference in transaction costs for those spending over £1m. Brexit compounds that; it’s not responsible for it. This may all sound like bad news but from uncertainty comes opportunity.
Some estate agents feel that even if I’m right these views should never be expressed in polite company. They see themselves as custodians of value for some reason and that their job is to continually talk the market up. I respectfully think that this is tosh! Markets rise and fall. In the south of the country prices have doubled over the last decade and this can’t and shouldn’t continue and the Government is clearly worked to ensure that it doesn’t. Having called the top of the market last Spring I can hardly suggest a year later that prices aren’t going to slip. That’s what happens once you’ve reached the peak.
I’ll be back to face the music at Christmas with some spurious excuses as to why I was wrong and with a well-justified view about 2018 too no doubt!
Happy New Year.