Those who have ignored the many pundits predicting a property price collapse, or the alternative, big rises from recent lows in house prices, have seen that John Clare has gotten it right again. Last year I predicted no change in house valuations (maybe up a bit, maybe down a bit). I was not phased by the lurch upwards in house prices in the middle of the year, as I pointed out at the time, prices were likely to come back down again and end the year pretty well where they started. They did just that. This year I said would be the same, property prices maybe up a bit, maybe down a bit. Well, it looks as though the year will end roughly where it started, or maybe down 2-3%.
It’s a bit early to start thinking about where next year will take us, but you people keep asking me, so here is my attempt to look ahead.
Real estate prices will continue to be ruled by three things, and three things only:
1 Bank lending
2 Wage increase levels
3 Political interference in sovereign and bank debt
Nothing else counts. So, what do we have?
1 Bank lending is not about to increase. Banks are in very bad shape across Europe. Result, house prices will fall in various countries.
In Greece (and Cyprus) there will be no market at all.
In Portugal and Spain the housing prices will be severely curtailed with falls of about 10%. I expect further falls in the Algarve where house prices got way above where they should have been, and they are still way too high. The only thing that is preventing worse falls here is the fact that so many people refuse to sell, and that will lock up the market for many years to come.
Ireland will see further falls in house prices, or a complete lock-up.
Italy will see falls.
France is an enigma. I dont expect rises, and common sense predicts further falls, but at the moment the whole country appears to be in sleep-walking mode, completely ignoring the financial mess that is stacked up all around them. That has to change, but how long before it does change is another matter.
Turkey I cannot say. I dont know enough about property prices in the region.
USA: Not sure whether to say walking wounded or dead man walking. Talk of recovery in the housing market is a bit premature.
UK: Ask me again in december when I will make my usual annual comment. At the moment I see no change. All things being equal house prices are fairly stated. The trouble is, all things aren’t equal.
2 Wages are not even keeping up with inflation, so there will be no house price increases across the UK or the euro-zone. In fact, the reverse will be the case. If wages are decreasing in real terms then house prices will have to follow suit.
3 This is the fly in the ointment. The political strategy of kicking a can further down the road will lead to further and further fiscal imbalances and is building a steadily worsening scenario which will have to blow sometime. When it does I have no idea what the outcome will be. I have never viewed a currency and political melt-down close up across several countries. It should at least be interesting. Reality will burst in at some stage. At the moment the politicians have barricaded themselves in. All bets are off with this one.
Dont you just love all this?
What all this means is that, putting it in a nutshell, house prices will stagnate or fall next year.
The rental market still looks good, but dont put too much faith in the current upward move in rents. Rising rents are also dependent upon rising income. I dont see much room for further increases. I suspect rents next year will stagnate.
Wealth warning: For the record, I have been doing these annual analyses of the housing market in one form or another for the past 42 years. I have yet to be proved wrong. However, the warning on the package takes the usual form: past success is no proof of future success.