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Why 95% of Traders Fail

UK Housing Market Affordability, House Prices Momentum and Trend Forecast

Housing-Market / UK Housing Nov 21, 2015 - 04:33 AM GMT

By: Nadeem_Walayat

Housing-Market

Most academic housing market commentators focus on the various measures of housing market affordability or rather unaffordability as house prices despite the price crash of 2008-2009 never fell to anywhere near the affordability levels of the early 1990's housing bear market lows and therefore ivory tower academics have continued to cling onto expectations that a further house prices crash is inevitable so as the fit in with their theoretical models of where house prices should fall to in terms of affordability that gets liberally regurgitated in the mainstream press, and looking at the graph below it really is very easy to be seduced by something that on first glance appears obvious that house prices really did have a long way to fall to reach the affordability levels of the past.


Affordability Trend Forecast Feb 2008 - UK House Prices on Target for 15% Fall Despite Interest Rate Cuts

What the academics and mainstream press commentators fail to comprehend is TREND, or more precisely the TREND in AFFORDABILITY. The trend over the past 40 years has been for the proportion of household earnings spent on housing costs to rise from 20% 40 years ago to an average of 35% for Dec 2013, which is trending towards 50% by 2030. This is the big story that academics have missed as over time, decades in fact people are becoming conditioned to spend more and more of their earnings on housing costs as being the norm.

Affordability Forecast - Dec 2013

The reason why I expected affordability to trend ever higher again has its roots in the exponential inflation mega-trend as workers relentlessly face a loss of purchasing power of earnings and savings due to reasons such as the Inflation of the size of the population that is MOSTLY as a result of continuing out of control IMMIGRATION, as evidenced by the baby boom now underway mostly amongst migrant families of the past 15 years that acts to relentlessly put pressure on housing availability where annual construction (new builds) are not able to keep pace with even half of the new demand generated each year. Therefore workers have no choice but to commit an ever larger proportion of their earnings towards housing costs, the effect of which is that housing bear market affordability troughs are being ratcheted ever higher, which has left many academics confused as they remain fixated on their theoretical models that imply house prices must fall so as to return to affordability levels of past troughs as the real world trend passes them and their models by.

The updated affordability graph (Sept 2015) shows the underlying relentless trend of affordability being once more ratcheted higher that looks set to breach the 2007 peak in just over a years time

The bottom line is that house prices are going to continue to get ever more expensive where those who are waiting for a crash to more affordable levels will continue to regret not buying as the only way housing can even start to become more affordable is if the UK literally triples the number of new builds each year from approx 140,000 per year to 400,000, something that is just not going to happen as it would literally mean the government undertaking to build a new major city EVERY YEAR! Instead it has been over 40 years since the last new town let alone city was built.

In my opinion I think it is inevitable that eventually the government will be forced to build a series of new towns that will grow into new major cities that should be announced over the coming years, which whilst encouraging economic growth will however also encourage further mass immigration, so even a series of new towns and cities may only make a marginal short-term difference to UK housing market affordability ratios.

For more in-depth analysis on this topic see the UK House Prices Mega-trend Forecast 2014-2018 (FREE DOWNLOAD).

House Prices Momentum

The Non seasonally adjusted UK house prices momentum shows that after a post election slowdown to 7%, momentum has once more increased to an inflation rate of 10%. Therefore the effective house prices momentum range is between 11% and 7% which implies an average annual house price inflation rate of about 9%.

UK House Prices 5 Year Forecast

It is now 23 months since excerpted analysis and the concluding 5 year trend forecast from the then forthcoming UK Housing Market ebook was published as excerpted below-

UK House Prices Forecast 2014 to 2018 - Conclusion

This forecast is based on the non seasonally adjusted Halifax House prices index that I have been tracking for over 25 years. The current house prices index for November 2013 is 174,671, with the starting point for the house prices forecast being my interim forecast as of July 2013 and its existing trend forecast into Mid 2014 of 187,000. Therefore this house prices forecast seeks to extend the existing forecast from Mid 2014 into the end of 2018 i.e. for 5 full years forward.

My concluding UK house prices forecast is for the Halifax NSA house prices index to target a trend to an average price of £270,600 by the end of 2018 which represents a 55% price rise on the most recent Halifax house prices data £174,671, that will make the the great bear market of 2008-2009 appear as a mere blip on the charts as the following forecast trend trajectory chart illustrates:

In terms of the current state of the UK housing bull market, the Halifax average house prices (NSA) data for Oct 2015 of £204,119 is currently showing a 4.5% deviation against the forecast trend trajectory (+17%), which if it continued to persist for the term of the 5 year forecast for a 55% rise in average UK house prices by the end of 2018 would translate into an 11% reduction in the forecast outcome to approx a 44% rise.

The bottom line is that the mega-trend drivers of out of control immigration, lack of house building, flood of foreign capital, and the UK governments perpetual inflation of the debt bubble ensures that the UK housing bull market will continue despite any hits such as that which the buy to let sector is taking, so don't be fooled by the perma house price crash / bear fools that populate the mainstream press who see every slow down or dip as a sign of the END based on fairy tale logic.

So that you are under no illusion, here is what the likes of the Telegraph were writing right at the very bottom of the UK house prices bear market of March 2009, that's right at virtually the VERY BOTTOM OF THE BEAR MARKET!

The Telegraph 11th March 2009 : House prices 'could fall by further 55 per cent

"People who bought buy-to-let flats are expected to “begin panic selling” and the average home value could drop below £100,000."

“Despite UK house prices already having fallen 21% from the peak, we do not believe that the correction is anywhere near over.

“Our core headline forecast is that UK property prices remain between 17% and 39% overvalued based on fair valuation. Moreover, history has shown us that when property…which has experienced a price bubble corrects, the price tends to fall below fair value for a period of time, as confidence in that market remains low. Prices could fall a further 40-55% if the over-correction was as bad as the early 1990s in our view.”

So forget the media noise and just pay attention to the trend which has house prices recently making a series of NEW all time highs! All of which continues to ensure that probability strongly favours an outright Conservative election victory in 2020, as per my long standing view - 08 May 2015 - UK House Prices Correctly Forecast / Predicted Conservative Election Win 2015.

Ensure you are subscribed to my always free newsletter for ongoing in-depth analysis and concluding detailed trend forecasts that include the following planned newsletters -

  • US Dollar Trend Forecast Update
  • US House Prices Forecast
  • Stock Market 2016
  • Islam 3.0

Also subscribe to our Youtube channel for notification of video releases and for our new series on the 'The Illusion of Democracy and Freedom', that seeks to answer questions such as 'Did God Create the Universe?' and how to 'Attain Freedom' as well as a stream of mega long term 'Future Trend Forecasts'.

By Nadeem Walayat

http://www.marketoracle.co.uk

Copyright © 2005-2015 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.

Nadeem Walayat has over 25 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis focuses on UK inflation, economy, interest rates and housing market. He is the author of five ebook's in the The Inflation Mega-Trend and Stocks Stealth Bull Market series that can be downloaded for Free.

Housing Markets Forecast 2014-2018The Stocks Stealth Bull Market 2013 and Beyond EbookThe Stocks Stealth Bull Market Update 2011 EbookThe Interest Rate Mega-Trend EbookThe Inflation Mega-trend Ebook

Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication that presents in-depth analysis from over 1000 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

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

Nadeem Walayat Archive

© 2005-2016 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

Yuriy
21 Nov 15, 14:48
increasing debt supporting house prices

Hi Nadeem,

your main message is that gap in demand and supply drives prices higher.

What about money printing and increasing level of debt?

We all know that with interest rates at say 3%, quoter of the house transactions would just not happen.

Therefore, does your analysis assumes low rates till 2018 or very low impact of them on the trend?


Nadeem_Walayat
21 Nov 15, 16:31
Interest rates

Hi

Interest rates are a red herring. Rising interest rates will probably see house prices accelerate! YES! Thats probably what is going to happen and then years later the academics will tell us why it happened.

But I have covered why already in many articles over the years.

And do I state in this article that the governments inflaiton of the debt bubble is another key driver.

Best

NW


Yuriy
21 Nov 15, 17:47
Interest rates

you have the point, but the situation might be slightly different in London and South East, where housing costs already account for 50% of a single earner family income.

And the situation is no different for a double earner family because of a high childcare costs, if children are present ;-)

Saying that, there is a huge pressure from immigration in London as well.

At some point, high housing costs will start impacting the economy, as even now, it is very hard to fill a mid-skilled office job in central London as people just refusing to commute and cannot afford to buy 1m 2 bed flats.

What's your view on that part of the foggy island?


Nadeem_Walayat
21 Nov 15, 17:59
London

Hi

I'll have to look at London in a seperate, regional analysis.

Best

NW


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