What the Experts Say


Nationwide Building Society

There is still no single figure for the development in British property prices. Nationwide Building Society – one of the two major lenders on the property market – thus reported a monthly increase of 1.2% in average property prices in November 2003 (Source: Nationwide monthly review for November 2003), whereas the other major lender Halifax Bank / HBOS plc reported an increase of 1.0% for the same month (Source: HBOS national commentary for November 2003). The property analysts Hometrack reported a figure of 0.4% for England and Wales only (Source: Hometrack market report, November 2003). It is, however, interesting that all three analysts agree that property prices can be expected to rise further.

In the Nationwide monthly review for November 2003, Chief Economist Alex Bannister writes that he expects property prices to increase by 9% in 2004. Furthermore, he has the following points:

  • Underlying economic conditions remain reasonably favourable for the housing market. Despite (November)'s base rate rise, mortgage rates remain low by historical standards and the labour market remains strong with employment rising to a new record (28.15 million) in August.
  • At present the majority of borrowers and lenders have the comfort of a reasonable equity cushion (typical deposit for first-time buyer is 11% compared with 5% in 1989)...
  • Despite higher levels of borrowing, someone entering the housing market taking a typical sized mortgage in relation to their income, would see payments remain relatively affordable at 27% of take-home pay.
  • ...our expectation is that rates will end 2004 at between 4.25 and 4.75 %.

In the review for October, Mr. Bannister does not seem unduly concerned about the prospects for moderate interest rate increases:

What happens to rates is not likely to be pivotal for the housing market.  Rate rises will increase payments and cause the market to slow but lessons from the last cycle show that price slumps are more related to labour market developments and policy changes.

...

Labour market developments tend to be more important for the housing market.  Even with interest rates expected to rise, the current outlook is for the labour market to remain relatively healthy over the next year or so.

All this suggests that house prices can be expected to increase further at a relatively high rate.

See Nationwide’s monthly and quarterly reviews at http://www.nationwide.co.uk/hpi/monthly.htm and http://www.nationwide.co.uk/hpi/quarterly/quarterly.htm, respectively.


Halifax Bank / HBOS plc

Halifax Bank / HBOS – the other of the two major mortgage lenders – expects the annual rate of house price inflation in 2004 to be 8%, which is close to the longer-term average over the past 20 years (Source: HBOS/Halifax Economic Forecast for 2004). If anything, the bank says, the risk to the 8% forecast is on the upside, as the three pillars that have underpinned the housing market during the last two years – low interest rates, good employment and good affordability – continue into 2004. House prices could, in other words, well be more than 8% higher by the end of 2004.

The bank adds:

High levels of employment, low inflation and a strengthening UK economy will continue to underpin the housing market. Mortgage payments remain low in relation to earnings and currently represent around 14% of gross earnings for a typical homeowner. We anticipate that UK bank base rates will increase during 2004 and end the year at around 4.50%. Assuming a base rate of 4.50%, mortgage payments will represent approximately 16% of gross earnings – very good affordability levels.

The National Commentaries of Halifax Bank can be seen at http://www.hbosplc.com/

Property Market Analysts Hometrack

Housing economist John Wriglesworth, B.A., M.Phil., D.Phil. (Oxon.) from Hometrack expects British property prices to increase by 4% in 2003 and by another 4% in 2004 (Source: Hometrack’s market report for November 2003).

Dr. Wriglesworth has the following comment in Hometrack’s November report:

The housing market is proving to be robust, despite recent rises in interest rates and with Christmas approaching. While activity can be expected to reduce over the next two months due to seasonal factors, we expect house prices to remain stable across all areas of the country. Even though interest rates are forecasted to rise a little further, they will still remain historically very low. Competitive mortgage rates with many special deals for first-time buyers, high employment and income levels and an acute short supply of housing in the UK all points to continuing rises in house prices next year.

We predict a 4% increase in prices for 2004. There’s more chance of finding Elvis on the moon than there is of a house price crash next year.

Hometrack’s reports may be downloaded at http://www.hometrack.co.uk/

Royal Institute of Chartered Surveyors (RICS)

Royal Institute of Chartered Surveyors – the British based, international professional body of some 110,000 chartered surveyors – expects property prices to increase by 5% in 2004. RICS Chief Economist Milan Khatri said the following on BBC News (16th December 2002) about the outlook for 2003 and 2004:

I predict growth in prices of 11% throughout the UK. However, in areas of the North and Midlands the figure is likely to be considerably higher.
The soft landing will occur in 2004, when I predict price growth will fall to 5% but that still represents a good return on investment.

RICS furthermore predicts that the UK needs to build 241,000 houses per year for the next 20 years in order to meet current demand.  Even with the Government’s commitment to build an extra 200,000 homes over the next 20 years, with current building levels at 170,000 per year, the shortfall could be a staggering 1.2 million homes. Based on current housing demolition rates (an average of 22,700 properties per year over the last five years) the existing housing stock will be under pressure too, with each property expected to be in use for over 1,000 years (Source: RICS, 10th December 2003). This should ensure a continued upward pressure on property prices.

The press releases of the Institute can be seen at http://www.rics.org.uk under Press Releases.

Council of Mortgage Lenders (CML)

The Council of Mortgage Lenders (CML) represents British banks and building societies. The CML predicts that property prices will increase by 6% in 2004 (Source: CML Housing Market Forecast, November 2003).

The Centre for Economics and Business Research (CEBR)

A report released by the Centre for Economics and Business Research (CEBR) on 19th May 2003, predicts that annual house price rises for the UK as a whole will fall to 3.6% by the 4th quarter of 2004 and 1.5% by the 4th quarter of 2005. After 2006, however, house prices are again expected to resume rising at a faster rate than average earnings.

Annual rates of increase of 6% from 2007 to 2013 and 5% from 2013 to 2023 are forecast, with house price growth only slowing into line with average earnings growth around 2020.

Moreover, the CEBR believes that the failure of successive attempts to reform the planning laws to encourage house building means that there is likely to be a continued shortage of houses. This shortage will translate into higher house prices in order to bring supply and demand into line. 

FPDSavills

The property consultants FPDSavills predict average price increases of 4% in 2004 (Source: FPDSavills Market Comment for December 2003).

They write:

... In our view, the strong take-up of fixed rate and discounted mortgages means that the impact of higher interest rates on house prices will be diluted.  Moreover, so long as employment remains stable, then a 0.5% to 1% increase in interest rates can be absorbed into the market.  In our view such a rise would support the expected slowdown in growth rather than any major price falls.  Even if housing costs do increase by more than expected, there is still room for households to cut back in discretionary areas of spending such as holidays and leisure – areas which have grown rapidly in recent years.

See FPDSavills’ homepage at http://www.fpdsavills.co.uk/ for further details.

The Economist

The Economist magazine has produced an analysis of property vs. share investments. Although somewhat outdated (August 2002), it is still an informative read.

See the analysis at
http://www.economist.com/printedition/displayStory.cfm?Story_ID=1302601


The National Association of Estate Agents (NAEA)

Melfyn Williams, President of the NAEA, comments as follows in the housing market survey of the NAEA from September 2003:

Record low mortgage rates and unemployment, combined with rising incomes and consumer confidence are supporting continued house price inflation at rates significantly above retail prices. We confidently expect to see house price rises continuing over the next 12 months.

Estate Agent Group Rightmove

Miles Shipside, commercial director of Rightmove.co.uk, says in the Rightmove House Price Index for October 2003: 

People who had been waiting in the expectation of a significant downward price correction have realised it’s not going to happen. Now they are buying – acknowledging that the market has bottomed out and supported by the ready availability of good mortgage deals from all the major lenders.

 
     

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