Coutts says house prices will fall 11%
Filed under: House Prices
But why is it so negative about the outlook, and what does it mean for you?
Predicting a fallCoutts hasn't just stuck its finger in the wind (that sort of thing is frowned upon by analysts). Instead Henry Lancaster, Senior Investment Analyst at Coutts, weighs up five factors – economic activity, valuation, liquidity, risk and momentum. He says that at the moment: "the negatives outweigh the positive investment drivers for UK residential property. Economic activity is negative. With the economy in recession, unemployment rising and wage growth sluggish, the domestic economic environment is unsupportive for house buyers."
It also looks at historical valuations, and over the long term has calculated that house prices are 11% over-valued. Its view is that house prices have broadly risen at the same pace with GDP (not adjusted for inflation). During booms and busts it detaches for a while, but soon reverts to the norm. At the moment house prices are still 11% overvalued by this measure, so at some point they will fall back to match GDP.
Lancaster's conclusion is that: "UK residential property appears unattractive as an investment. Prices appear to have been bid up by investors seeking 'safe havens' to preserve their wealth given record low interest rates. However, as with many other such assets, the UK residential property market is far from risk-free."
The alternativeHowever, it's worth bearing in mind that there are as many predictions for the housing market as there are pundits. There are other negative voices around, including RICS which says: "The outlook for prices [has] deteriorated .. .. This most likely reflects the deteriorating economic news flow coming out of Europe at the moment."
Halifax, meanwhile is predicting little or no change in the immediate future. Martin Ellis, housing economist, said:"We continue to expect little overall movement in prices as the UK economic situation remains challenging." The Intermediary Mortgage Lenders Association, concurs.
The Centre for Economics and Business Research, on the other hand, predicts a growing North/South divide, with the south-east, the east, and the east and west Midlands rising 1% this year, with every other region suffering falls.
Meanwhile, homeowners are clinging to optimism, according to the latest Halifax Housing Market Confidence tracker. Nearly 4 in 10 respondents predicted that house prices nationally will increase over the next year, almost double the 20% that believe house prices will fall.
So what do you think? Is Coutts right? Let us know in the comments.