Council of Mortgage Lenders 2008 Housing Market Forecast Demolished
Housing-Market / UK Housing May 22, 2008 - 12:32 AMBy: Nadeem_Walayat
The Council of Mortgage Lender (CML) revised their forecast for UK House prices for 2008 from an anticipated rise of 1% as of Oct 07 to now project a fall in prices of 7%. The CML, inline with its member institutions has a vested interest in talking up the housing market as evidenced by the inaccuracy of their housing market forecasts during periods of falling house prices.
As a reminder to readers, the Market Oracle forecast for UK house prices made ahead of the actual peak in the housing market in August 2007 is for a 15% drop over 2 years from August 2007 to August 2009, therefore forecasting a 7% to 7.5% drop for the year 2008.
UK house prices (as measured by the Halifax NSA data) have fallen by 2.2% so far during 2008. Therefore it appears that the CML having proved inept at providing an accurate house price forecast and now appear to have taken the safe route of extrapolating and rounding the price trend this year to the end of 2008 i.e. 2.2% X3 = 6.6% rounded up to 7%. Similarly the Royal Institute of Surveyors (RICS) have revised their forecast lower for 2008 from unchanged to now project a 5% fall.
The article Media Lessons from 1989! presented headlines from the last housing bear market of how forecasts issued by the institutions with a vested interest in the mortgage market, that were lapped up by the mainstream media tended to be grossly inaccurate against the actual outcome. Which is why even as recently as March of this year, many of the chief economist's of the big mortgage providers were still talking up the prospects for the UK housing market suggesting house prices would not fall this year i.e. Britains biggest mortgage bank, the Halifax gave a positive spin on UK House prices in March 08, - "strong underlying fundamentals will continue to support the market throughout 2008". "Over the past year, the average price of a home in the UK has increased by £4,390 to £196,649," he commented. "Whilst the housing market has slowed over the past six months, it is supported by sound economic fundamentals. Interest rate cuts by the Bank of England are also helping to underpin house prices,".
The UK Housing market remains closely on track to fulfil the 2 year forecast for a 15% real terms decline. Beyond August 2009, preliminary analysis suggests that the housing market will continue to be weak with no prospects of real-term gains.
House Prices and Crude Oil Fuelled Stagflation
Crude oil hitting $135 shows signs of the stagflationary environment that the world is entering. Despite the short-term overbought state, crude oil looks set to continue its inexorable trend towards $200 and then beyond, doubling every few years as unrelenting emerging markets demand chases Peak Oil capped supply. The analysis posted just 2 days ago ( Oil Crisis Stagflation Spiral Special ) explained why crude oil fuelled stagflation is going to be with us for many years and warned of a possible imminent price spike from the then $127 to beyond $140, with crude now at above $134 the price spike is well under way.
The consequences of stagflation for the UK housing market is for a rise in even the flawed official CPI inflation measure. The real rate of inflation for the UK is probably at RPI +1% and therefore 5.2%. Under such an increasingly inflationary environment it is difficult for nominal house prices to fall much beyond the forecast 15%, as each year house prices are losing an additional inflation adjusted value of 5% therefore over a 3 year period that may see UK house prices fall by say 18% in nominal-terms, when adjusted for 5% inflation this would imply a real-terms fall of in-excess of 33%.
Therefore the rate of real inflation will be a key factor in the construction of the housing market forecast for the period post August 2009 as inflation will erode the value of house prices for many more years, even if there is little change in house prices in nominal terms.
More Analysis of the UK Housing Market:
By Nadeem Walayat
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Nadeem Walayat has over 20 years experience of trading, analysing and forecasting the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication. We present in-depth analysis from over 150 experienced analysts on a range of views of the probable direction of the financial markets. Thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk
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