House prices: Who is right and who is likely to be spectacularly wrong?

The headline in The Times bellowed, ‘House prices to fall next year as council tax jumps’, with the OBR suggesting that house prices would fall in 2021 by 8%, and due to this, by the time we reach 2025, the ‘cost of an average home will be 17% lower than they predicted at the time of the budget in March’.

Less than a week later, Nationwide issued its own figures – a somewhat different take saying that house prices had actually risen by 6.5% annually. The October Halifax index had looked similar, suggesting a 7.5% annual increase.

It’s almost impossible to look at these rather differing views of our market and not somehow echo the words of that great ‘philosopher’ David Brent, who sang the line, ‘Who is right and who is wrong?’

So lets add some further data into the mix. Land Registry and HMRC figures said that the number of UK residential property sales had increased by 9.8% between September and October up to 105,630. The Bank of England reported an increase in the number of mortgage approvals for house purchase – 33% higher in October than February 2020.

Other industry businesses suggest there is no slowing down in terms of mortgage/housing market activity at present – SDL Surveying being the latest to say this.

And yet, here we have the OBR apparently going against the grain, seemingly predicting a huge drop-off in activity post-stamp duty holiday, and an accompanying fall in UK average house prices of 8%. This, despite all the recent figures, suggesting nothing of the kind.

In that regard, let’s change those David Brent lyrics to something more realistic, ‘Who is right and who is likely to be spectacularly wrong?’

How do we get to this point? How can the OBR truly know what 2021 will bring? This, as so often is the case, appears to be a forecast predicated on regional changes and extrapolated out to a ‘national viewpoint’, which doesn’t really exist in this country anyway.

So, will there be areas of the UK hit harder than others by both the Covid-19 pandemic and the potential economic hit of Brexit? Yes, there will. I’m sure we can all think of regions where, for example, lots of people work in manufacturing, or they work in industries heavily hit by the pandemic, such as hospitality, retail, leisure, etc.

But, even then, there will continue to be lots of people who can afford to buy properties in those areas based on the wages they earn. Similarly, many areas of the country remain pretty unaffected by Covid-19, and there are large numbers of people working in sectors such as professional services who have also not been impacted.

Will they continue to be able to work from home, for example? Will they be able to afford to move to properties which allow them to do this more? Will they be moving to areas which might seem more appropriate for those work/life balance changes?

The answer is yes, and they are already purchasing properties which fit their particular bill. I was recently told by one agent that the very first question most potential purchasers now ask is, what is the internet speed?

And so, in the vast majority of areas across the country, purchasing/home-moving will continue, while we continue to build far fewer properties than it requires to bring house prices down. Demand will remain strong, supply will not match it, and simple economics tells you what house prices will do as a result.

Now, of course, for some, growing unemployment levels will have an impact, wage levels might not rise, confidence might be impacted. But, again, these will be specific to certain regions or industries, and that should not be used as the basis to paint the entire picture of what will happen to the ‘UK housing market’ or ‘UK house prices’.

It’s much more specific than that and a situation which should not lend itself to grand predictive gestures which simply do not ring true for the vast majority. No-one suggests that 2021 will be present a land of milk and honey for all, but the likelihood of huge falls in house prices appear to look unlikely.

And by the way, in July the OBR suggested that house prices would fall by only 3.8% in 2021 in a ‘moderate’ economic scenario while in its ‘upbeat’ scenario it suggested prices would increase by just 0.2% this year. It is already very wrong on the latter, and likely to be wrong in a big way on the former.

The market will play out as the market plays out. Quite frankly, these predictions are not worth the paper they are written on. The reality would appear to show a very different outcome.