UK House Price Predictions Often Wrong – Gosh!
On 9 September, the Sunday Times ran a piece ‘outing’ housing market forecasters which have got it wrong in recent years. Not all of them, seemingly, just ‘the majority of property market experts’, at least as compiled by the writer Anna Mikhailova.
Highlighted in a box entitled ‘How the experts fared’, consultancy firm Capital Economics gets the wooden spoon for apparently predicting in October 2010 that there’d be an 11 percent fall in the national housing market last year whereas, according to the Nationwide Building Society’s figures, the market actually rose by one percent year on year. Plaudits go to the Centre for Economic & Business Research – in what would have to pass as an info-mercial if only they’d paid for it – for being least wrong vis a vis 2011. CEBR predicted there’d be a 2.2 percent rise apparently.
It’s a bit fanciful to suggest that the five firms identified by Mikhailova are ‘the majority’ of the UK’s house pricing pundits. Predicting house price movements over some period of time is rather ‘every man and his dog’ territory. Banks, building societies, accountancy firms and estate agencies – Knight Frank is on the list of five, being third most wrong with a minus two percent prediction for 2011 – are all in on the act. As are any number of investment bloggers of greater or lesser acumen.
In the Sunday Times piece, we’re not made privy to exactly what each forecaster actually said – in 2010 as regards 2011 – so we just have to assume that it’s apples with apples. It’s entirely possible of course that a given forecast might have been for this rather than that specific market – either nationally or within London – but we’ve got no way of knowing, without going and doing our own research which seems a bit pointless.
I say that because, if house price predictions are as unpredictable in their accuracy as suggested by the Sunday Times, does anyone take them seriously? Take first-time home buyers, for example. Are they going to be swayed in the buying decision by predictions for house price movements for the balance of this year or for any later period? Perhaps, but it’s more likely that what will drive their decision is whether (a) they really want to buy as opposed to continue renting, (b) they have the 20 percent deposit demanded nowadays by High Street lenders and (c) they can make the mortgage instalments – or at least convince the lender on that score. Typically, a first-time buyer is in it for the long haul, indifferent to near-term price movements, though there will always be some who believe a killing’s just waiting to be made on the dinky little two-up two-down in CR9 5AA they’ve set their heart on. Of course, banks and other lenders care what happens to house prices – it’s relevant to their risk after all – but as a rule they tend to crunch their own numbers and not be too bothered about what the competition (if we can use that word these days apropos residential lending) might think.
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Property investors may care, especially investors buying for capital gain rather than income generation. But any property investor in that camp ought – if of any experience in the game – be the first to know how unreliable future price predictions can be. Indeed, someone buying in the belief that the value of the property will go up and a capital gain will be realised should absolutely not be basing that belief on predictions. Instead, they should be focusing on concrete factors relating to the specific property, its location (location, location), its potential for improvement, demand for that kind of property, and so on.
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And what of 2013, remorselessly approaching? Put appropriate terms into the search engine of your choice and you’ll come up with entries like these on the first few pages – – Housing market to pick up in 2013, says OBR (BBC News) – Debt crisis – UK housing slump will deepen, says IMF (The Telegraph) – UK property prices expected to grow in 2013 (Select Property) – House prices to leap 20% by 2013, says CEBR (This Is Money) – House prices ‘will fall around 20%’ by 2013 (Citywire Money) – Housing market seen fragile for next 2 years (Reuters)
So there you have it, predictions all over the shop. Okay, not all of those just listed have been made this year in respect of next year – which was the Sunday Times parameter. That of CEBR, for example, was made in 2010 and covered the four years out to 2013. So we should probably be more tolerant of predictions further out from the relevant period. Or should we? If an expert asserts in year 1 that the market will rise 20 percent by year 4, indeed expressly or implicitly markets him/her/itself as able to make such predictions, shouldn’t he/she/it be held to that forecast when year 4 comes around and the market has performed differently?
At any rate, as we all know – or should, markets being markets, they tend to do whatever takes their fancy at any given point in time. So it stands to reason that sometimes pundits will get it right and sometimes those very same forecasters will get it badly wrong. It’s a bit tough on the few selected – perhaps randomly? – by the Sunday Times to be singled out for being in the latter camp as regards 2011. Any or all of the five could prove to be dead right for 2013, or 2014, or … You get my drift.