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UK Housing market forecast for 2007

Housing-Market / Forecasts & Technical Analysis Dec 31, 2006 - 12:18 AM GMT

By: Nadeem_Walayat

Housing-Market

Early in 2006 we reiterated the overbought state of the UK housing market and how it was ripe for a decline. But the decline failed to materialise, as an early slowdown failed to go negative, with the market starting to trend higher again later in the year. Despite two rate rises, the housing growth has accelerated going into the end of 2006 to an annualised rate of over 8%.

UK Housing market forecast for 2007


Our article of February 2006 - UK Housing Bubble is Popping , analysed the housing market in terms of average earnings, reporting that the market had risen from X3 to X6 earnings and suggested the market was ripe for a decline in real-terms. Articles during September 2006 highlighted affordability concerns, and warnings of an impending UK crash, Joseph Rowntrees report into the state of UK Housing , IMF warns over UK property crash .

On 14th October 2006, we attempted to explain why the UK housing market continued to rise, and constructed a special House price / Earnings / Interest rates ratio, which concluded that in historic terms the UK housing market was not expensive, and even a rates rise to 5.25% would not be enough to force prices lower.

In November 2006, with the UK housing market continuing to rise, we evaluated the relative state of housing markets around the developed world, concluding that Germany was at a trough, and Japanese property had already started to trend higher, representing better opportunities than UK property.

UK housing Market forecast for 2007
The UK housing market has been underpinned by continuing economic growth, low historic interest rates and high employment, going into 2007 all three factors are still expected to support the UK housing market. We do expect interest rates to rise to 5.5%, and thus economic growth is expected to slow and unemployment also rise. These will undoubtedly have an impact on the UK housing market and thus should slow during 2007. Whether it will actually go negative during 2007 is hard to say, since it has failed to go negative for each of the last 3 years !. Also the strong Buy to let market continues to support the housing market, as more people look for investment opportunities, though on the negative side, higher council tax bills will put some dampeners on the property market.

Taking all things into consideration, the Market Oracles forecast for the UK Housing market is to end December 2007, up 3.5% for the year. With regional variations meaning that some parts of the country may even experience declines as London is expected to be stronger due to large bonuses paid to the City of London supporting the market over all.

However should interest rates rise beyond 5.5%, then the picture would change markedly, with a high probability of house prices going negative during late 2007.

Looking wider afield, Germany looks the most promising of developed european economies, as the property market there has only recently started to play catch up to the UK.

by Nadeem Walayat

(c) Marketoracle.co.uk 2006. All rights reserved.


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