House Prices – We Don’t Anticipate Nominal Falls

In my last blog post I looked at why I do not think rents would fall much, even in real terms over the next year.

I also don’t think house prices will fall much in real terms either, at least not over the next 12 months.

OK, I will admit when the Covid “pandemic” and the insane lockdowns had just started, I predicted big falls in house prices, which did not materialise. I think it is honest to admit when you get things wrong.

Falls in house prices (and especially rents) in 2020 and 2021 tended to be limited to inner cities and particularly to flats and were quite transitory.

The main reason that prices held up better than I expected was due to the magic money tree of the furlough and other assorted schemes, (which we are now paying for royally in high inflation), even more cutting of interest rates and because of an ongoing lack of new houses getting built at that time, due to supply issues, caused directly by the policies of house arrests and other dumb interventions, not just here, but worldwide.  

So, that’s my excuse: Government policy was even dumber than I thought it could be and the policies of the house arrests and other panicky and mostly pointless “non pharmaceutical interventions” (we will leave the equally dumb pharma ones aside for now) were just more extreme than I could have envisaged.

So, what about today and why do I think house prices will stay up in nominal terms and real falls will be limited? Here are my reasons.  

Interest rates have indeed jolted upwards, but mortgage rates have fallen back in the last 6 weeks. Obviously, this is not reported much in the fear-driven mainstream media. The great fear of Bank of England base rates going up to 6% looks overblown right now. Having said that, we won’t be getting back to base rates of less than 0.5% in a hurry, 3% to 4% might be the “new normal”, (sorry to use that phrase), which is more akin to a long-term historical level.

Wages are falling in real terms, but they are still rising well in nominal terms. Sure, people are being squeezed by fast rising energy bills, which has led some lenders to tighten lending criteria, but not tighten them by all that much.

There is still a lack of house building. This is caused in large part by supply constraints in house building, which is driven by building material shortages, where there is a lot of inflation still. Lockdowns and other restrictions on trade due to the “pandemic” are still in place elsewhere in the world, especially in China. This is not about to end soon. Lack of supply of housing drives up house prices.  

Inward migration is still booming, these people need a place to live – and though most of them are not house buyers, (apart from Hong Kongers), this improves the prospects for buy to let, leading to more demand for property in this corner of the market. (As an aside, the Conservatives have hugely failed to get a grip on immigration and are now out of time to sort it before the next election. For this reason and due to the fact that Kier Starmer has smartly just stolen some UKIP policies on immigration, I predict the Tories will certainly lose the ballot in two years’ time).

There is a lot of buying from overseas. This effects mainly London, but also there is a trickle-down effect in the wider SE of England.

Of course, this is just the whole UK picture.

As usual, houses will perform better than flats and some areas will do better than others. And as always, we help our clients to spot and buy into the areas that will deliver the best capital and rental growth.

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