Estate agents market predictions are notoriously inaccurate, yet forecasters seem to agree values are likely to rise over the next 12 months. Forecasting the housing market is especially difficult, but many companies regularly try their hand at it. With prices on course to have risen between 3 per cent and 6 per cent in 2013, depending on the benchmark you use, let’s see what forecasters have in mind for 2014!
The wealth effect
The National Institute of Economic and Social Research (NIESR), a think tank, is forecasting house prices to rise by 5.25 per cent next year. NIESR spokesman Simon Kirby says: “Households may feel wealthier and may be spending more and borrowing more.” Feeling wealthier through higher property prices is a phenomenon called the wealth effect: it causes people to spend more and pushes prices up further.
Help to Buy will help increase house prices
Knight Frank, the real-estate consultancy, has released the most confident prediction: a rise of 7 per cent in 2014. This takes into account “changes in the economy and government support”, including the “dramatic” effect of Help to Buy. Help to Buy is a taxpayer-funded scheme that helps more people get mortgages with lower deposits.
Improved mortgage availability
Estate agent Hamptons forecasts an increase of 6 per cent, stating in its autumn report: “Improved mortgage availability combined with increased confidence and high expectations of future house-price growth has encouraged new – and pent up – demand to the market since the summer of 2012. “We expect these features to continue.”
Good news for buyers?
Capital Economics, the research consultancy, forecasts a 5 per cent gain.
This is a reversal on its forecast of a 3 per cent fall earlier this year. Note, however, that last time Capital Economics changed its long-held, contrary opinion from a decrease to an increase that property prices then fell dramatically in the 2008 crash.
A Capital Economics report states: “The growth in mortgage lending so far has been concentrated among first-time buyers as those, who perhaps do not need the Help to Buy scheme, have rushed in to beat the expected surge in demand.” This seems to be another U-turn: in August an economist at the consultancy was quoted as saying he thought the Help to Buy scheme would be a “bit of a flop”.
Population growth pushes up prices
When it comes to increasing property prices, the elephant in the room is our vast population crammed onto small island space.
The Centre for Economics and Business Research (CEBR) is slightly less timid about this issue than most organisations. CEBR economist Daniel Solomon stated that population growth combined with property shortages remains the biggest factor. That’s why it expects prices to rise by 3.9 per cent next year.
Average rise of 5.6% in 2014
The average forecast is for a rise in property prices of 5.6 per cent in 2014, ranging from 3.9 per cent to 7 per cent.
That tight range and the similar reasons for the forecasts might give you comfort. But, while forecasts are entertaining, homeowners might do better to focus on mortgage strategy.