Most people in property are fascinated with property price forecasts. (Some are maybe a little obsessed with them!)
With good reason. Property price forecasts are to some extent what keeps the property market moving. Everybody in the market likes to get an insight into whether they could make money (or alternatively avoid losing it) by buying or selling property now.
Although property price forecasts have always used a crystal ball to some extent forecasters and analysts have become pretty good at forecasting property prices in recent years.
But could now be the time to say this: Property price forecasts are best ignored.
In fact, you could even say it is pretty much impossible to forecast property prices right now. And that taking any notice of them is extremely risky to say the least.
Let’s take a look at why property price forecasts might be best ignored at the moment. (Covid is behind many of them, but it’s not the only reason.)
Money has never been so cheap. That’s been the case for some time and it’s unlikely to change any time soon.
If, as many experts believe, inflation will rise then with such low interest rates it could effectively cost nothing to borrow money. How can that make sense?
The economy has never been so uncertain, there are just too many uncertainties to factor in. Property price forecasters review a range of other forecasts to help them arrive at their own forecasts. For example, interest rates, inflation, employment levels, gross domestic product, the UK economy, the world economy. Since all of these forecasts are likely to be inaccurate right now then property price forecasts are liable to be inaccurate too.
There has never been so much Government intervention in the property market. Not too long ago interest rate changes were the main Government intervention in the property market – and even that didn’t change very often. Today the Government is intervening in the market in a wide range of different ways. For example incentives for first time buyers, shared ownership schemes, support for mortgages, Stamp Duty holidays and the easing of planning regulations.
It would be easy to believe that, as a result of all this support, the Government considers the property market is too big and important to fail.
Following on from this, it’s never been so difficult to predict what the Government might do. Property price forecasters have always relied to a certain extent on how a particular political party’s manifesto will translate into Government policy measures in the market over the coming years. That’s a tough ask right now.
Over the last year there have been many announcements and U-turns, in property as well as much else. It’s pretty much impossible for forecasters to forecast what property-related moves might be announced next.
Consumer sentiment has never been so good, when times have been so bad. In difficult times consumers normally cut their spending, cut their borrowing and pay off their debts. Right now consumers seem willing to increase their spending, increase their borrowing and expand their debts – the absolute reverse of what might be expected.
It perhaps goes to show what a wild card human behaviour can be. A wild card that can completely throw even the most painstaking forecasting.
Most property price forecasters have already got things wrong .... very wrong! Even at the end of 2020, after the initial waves of Covid, many were still predicting price falls rather than the large rises which have occurred.
Many forecasters suggested that, at best, property prices would stay static in 2021. In many places the current annual rise is around 10%!
Maybe we can forgive them in the circumstances of course. But it just shows how difficult it is to forecast the property market.
In summary, while property price forecasts have been reliable as well as invaluable for many years it might be wise for everyone in property to bear in mind that they perhaps can’t be expected to be that reliable anymore.
So does the uncertainty around property price reliability make property something to be avoided right now?
Not necessarily! Here are a few thoughts:
Home owners are likely to see their home as a place to live rather than as an investment. The concept of nesting rather than investing stood the property market in good stead for many years. People still want and need a place to live.
Investors may tend to revise their strategies. Rather than investing for growth investors may look to focus on investing for income. There are still some very good yields to be had from property investment, especially when compared to other investments.
Everyone will perhaps start to take a more measured view of property prices, and of property price forecasts. Ultimately that could help the market to rebalance and make property price forecasts reliable once again.
So yes, property price forecasts are probably best ignored. But maybe only for the time being!