In June 2020, the Centre for Economics & Business Research (CEBR) forecast that UK residential house prices would fall by 8.7% that year, when in fact they rose by 8.5% (according to the Office for National Statistics). Again in September 2020, the same illustrious body predicted that UK residential property prices would fall by a little under 14% in 2021, when in fact they yet again rose substantially.
So are the CEBR poor forecasters? Well, I believe that it would be fair to say that there were mitigating circumstances that strongly influenced the large disparity between their forecast and the reality of what was about to occur. Also, it is worth pointing out that I can think of no other “market expert”, pundit or think tank that (at that time) foresaw anything other than a slump in the housing market due essentially to the outbreak of Covid-19.
So what exactly happened? Well, it was quite simple really in that the CEBR only took into account the “event” of the pandemic itself, and NOT the government’s response to it. You see the furlough scheme, the deferral of mortgage interest, and the stamp duty holiday all played an essential role in not simply damage limitation in the face of adversity (as most likely intended) – but acted together, creating a major market stimulus. All set against a backdrop of stable but abnormally low interest rates, turbo charged a “race for space”, and a re-evaluation of work life balance by a substantial number of the working population.
So you see, major national events may have fast moving and far reaching consequences, but they are only one side of the equation when it comes to forecasting markets, as in essence “cause and effect” will always need to be balanced with the “response” whether it is proportionate or not. So, with the benefit of hindsight the CEBR were essentially making their forecasts with incomplete data – hence the stark variance that came to pass.
So what of 2022? Well thus far Citigroup predict a rise of 5.6%, and Oxford Economics predict a potential fall in house prices of 0.6%. Twindig suggest that house prices will rise by an average of 5% this year, whilst Zoopla’s Director of Research, Richard Donnell was quoted as saying that he expects to see house price growth come in at around 3% by the end of the year. Who is right? Well feel free to take your pick.
But whoever you believe, the key factors to keep an eye on this year are 1) Inflation – currently moving towards 5%, but is this a temporary post-pandemic blip or is it here to stay? 2) Interest rates – will they remain under 1% or will governments both here and in the US have their hand forced by stubbornly high inflation, 3) Housing supply and demand – will residential housing remain in short supply in relation to buyer demand, or will mortgage lenders succumb to concern about buyer affordability given the impending cost of living “crisis”?
The factors that I have listed above will all play themselves out throughout the year ahead no doubt, and maybe they will all play their part in one way or another – but who knows? So, I believe that when you sit down with your cappuccino this month and take in the housing market predictions for 2022, please remember one thing – predictions are merely informed guesses as to what might happen and need to be judged as such. Sure, depending on who you believe – an informed or ill informed guide at best, but I would not stake either my house or reputation on them.
The author of this article is Peter Nicholls, CEO of Ideology Consulting. For more information about Ideology Consulting, simply go to www.ideologyconsulting.co.uk