Your Property & Economic Predictions for 2012

1) 1.25%
2) 3.5%
3) +3.5%
4) +1.5%
5) +5%
6) +2%

Hi Stan,
For point six, I'm assuming you've made a typo? 20%? Unless you mean +20 GBP? 20% would be nice!
Nis.

1. 1%
2. 3%
3. +3%
4. 0%
5. +5%
6. +3%

1. 0.5%
2. 2.2%
3. +0%
4. - 5%
5. +5%
6. +3%

Mark asked for a rationale for my suggested figures. I'm afraid I can see little but economic hard-pounding ahead for at least another year, as consumers and states deleverage their debt (helped by inflation), and large companies continue to make not-bad profits and sit on their huge cash reserves because of a lack of confidence in the returns available from investment in the UK.

I think inflation ought to drop as predicted, and if we have a crash in China, the price for oil and other commodities could drop quickly as they are pumped up way too high at the moment.

As regards housing, mortgage availability will remain poor because banks continue to seek more profitable lines of business and need to build up their capital ratios. Large deposits or high interest rates on small deposits will still be required, so unless there is a huge seller strike, I think prices will keep dropping gently as buyers exert continuing pressure on prices. It is a strong buyers' market at the moment, so anyone with large deposits and nothing to sell - people who inherit, or have a culture of strong saving and assistance from extended families, or are downsizing and have already sold up - can drive down prices and make it very hard for builders of new homes to make a profit. Assuming "London" means the whole city, not the artifical world at the centre, I don't see why London should not be affected by the same macroeconomic conditions.

As regards rents, there has to be a limit to price rises, especially at a time when tenants' budgets are being squeezed from every other direction except some relief from inflation. I think rent rises will slacken off due to lack of affordability and because landlords see higher rents can just mean higher arrears, and there will be increased publicity about the difficulty of finding housing if you are on benefits, as unemployment increases and the housing benefit changes start to bite. There are not enough HMOs to meet demand for houseshares, either for working tenants seeking a cheaper alternative or for single people on benefits.

I'm not confident that the government's guarantee scheme for FTBs will be popular, because buyers are nervous and debt-averse, and fundamentally want there to be a crash in prices. A crash is of course not what sellers want, so since most of them are protected by low interest rates from being forced sellers, they will just take their property off the market if offers come in too low to meet their price expectations or what they perceive as price resistance in other sellers, i.e. anyone who is looking to sell (and has a choice in the matter) will not agree to sell low if they suspect that the people they want to buy from won't also lower their prices.

1 0.5%
2 3.3%
3 +2.5%
4 +1.5%
5 +6.25%
6 +3.25%

Here’s my rationale …..

I don’t know how, but I think the Eurozone crisis will be averted (for now). It will return another day. That will keep interest rates low for many years as our economies can’t afford to increase them substantially.

There is no demand led inflation which is why we are seeing wage freezes and the economy being squeezed as a result. The VAT and fuel prices impacted heavily on inflation but these will wash through the system and will result in a sharp fall in inflation of 1.5% to 2% by the end of Q1 2012. The downward pressure on retail prices will continue due to lack of consumer throughout the year and I believe there is a good chance that inflation will fall to the Bank of Englands 2% target by the end of the year as a result. I also believe there is a chance of it over-shooting and falling below the 2% target.

London prices will continue to increase as more of Europ’s wealth invests into property in our capital. This, combined with the Olympics will spill over into rental demand and force people out of the capital into commuter belts, hence the ripple effect will start to spread outwards. My concerns remain for the North though as there are no signs of productivity returning to those areas. Whilst I have predicted a £30 increase in average rents across the UK I think this will be extremely divided with much larger increases in the South East masking the issues in areas with high unemployment where, I believe, the government will exert increased pressure to reduce the cost of LHA payments.

It’s just a prediction and an opinion, we are all entitled to have one. What’s yours?

Note to all who have made a prediction, I appreciate it’s a gut feeling in the main. The professionals will have run thousands of computer based secenario’s to arrive at their predictions and will have produced fancy fan charts and far more detailed reports to rationalise them. However, as landlords and property investors, we tend to go with ‘gut feel’ and in my experience to date, our predictions are certainly no worse than many others.

Thank you to everybody who has predicted figures so far. Now let’s follow the lead of Tony and add some rationale to them please.

Regards

Mark

My rationale :-
1. BoE is balancing between keeping Interest rates low to stimulate growth/avoid recession and raising rates to manage inflation. As you say, there are reasons why inflation will reduce as things drop out and I don't believe the Gov finds inflating away debt while encouraging exports a problem.
2. Fuel prices have happened already and petrol prices are starting to ease - probably due to reduced demand in these times. Retail are struggling - see how early hard sell sales have started- not January sales but November sales! Competition will keep demand based inflation low.
3. foreign buying and the olympics will raise London prices(but watch out for the hangover when the Olympic village becomes affordable housing!)
4. There are predictions of private sector job losses next year and a drop in house prices from distressed sales. These will be offset by an increase in BTL as well as the london ripple. Some companies are already buying up properties to let out. While interest rates are low a prospective return of 6%+ is good business.
5. and 6. anybodies guess!

I'll confess I'm in a state of pessimism and yet not despair and panic. I don't see where the growth and efficiency/productivity gains are going to come from to get the UK out of this mess, but many people must have had similar feelings during previous recessions and things recovered.

I wasn't really involved in the last big housing recession of 1989-99, but I do remember that house prices dropped to less than three times average incomes in 1996 and lots of people were repossessed and there was a long period in the mid-1990s when the papers talked repeatedly about the lack of a "feel good factor". It feels like we're entering such a state now, except house prices have not collapsed and somehow the BOE has been able to keep interest rates super-low, which it never did before.

As a landlord I have done extremely well from low interest rates, because my mortgages are on pre-2008 base-rate trackers. I suspect there is going to be a heavy shakeout of homeowners and landlords when interest rates rise, so any landlord on a high LTV but low interest rate would probably be well-advised to pay down debt or build a large cash reserve that will earn interest, to try and improve her position before the crash comes.

1. 0.5%
2. 2.5%
3. + 7.5%
4. + 2.5%
5. + 10.0%
6. + 5.0%

1. 0.2%
2. 2.5%
3. 8%
4. 3%
5. 10%
6. 5%

Assuming the whole world does not end before we get a chance to count what money we may have. One things for sure it wont be in EUROS!!