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Urgent Stock Market Message

UK House Prices to Rise by 25% States National Housing Federation

Housing-Market / UK Housing Jul 28, 2008 - 11:17 AM GMT

By: Nadeem_Walayat

Housing-Market Best Financial Markets Analysis ArticleThe National Housing Federation (NHF) is forecasting that UK house prices will rise by 25% by 2013, that will take house prices upto an estimated £274,000 by 2013 from their current levels of approx £180,000 based on the Halifax House Price data.

Wait ! before you all go out and rush to buy houses we need to take a look at how NHF's conveniently forgotten forecast of August 2007 has performed that none of the mainstream media have taken the time to evaluate.

UK house prices to rise 40% by 2012 - UK house prices will increase 40% over the next five years because of a shortage of properties, a report by the National Housing Federation said. The average value of a home will rise to £302,400 ($618,000) by 2012, the London-based organisation, which represents 1,300 housing associations, said. Prices in London will jump 48% to £478,300. - (Aug 7, 2007)

House prices to rise 25% over 5 years - House prices are set to increase by a quarter over the next five years, according to an optimistic report from the National Housing Federation (NHF) a shortage of new properties coming onto the market will see the average cost of a home rocket to £274,700 over the next half decade. - (July 28th 2008)

The below graph illustrates the existing forecast against what has transpired over the last 12 months as well as the addition of the new forecast - That extrapolates a trend to the £274,700 or to £225k (25%) by we presume the end of 2013.

As you can see the existing NHF forecast for a 40% rise was made right at the peak of the UK housing market. In my opinion it is completely irrelevant for what seems like a vested interest in a rising housing market to come out with an annual bullish house price forecast, as those that followed NHF's 'forecast' have clearly paid the price in not only missing a 10% advance in house prices, but also suffering a fall of 10%, therefore a 20% deviation from the trend to date.

Rest assured that we here at the Market Oracle will keep market participants informed on the previous forecasts following press releases, so as to ensure that readers have a clear understanding of the value of forecasts such as NHF's, that many in the mainstream media unquestionably seek to republish with little analytical input or research into the accuracy of previous forecasts.

However, the latest 5 year forecast by NHF for a 25% rise which equates to a compounded rise of approx 4.5% per annum is a very, very safe forecast, for inflation as measured by RPI is also expected to oscillate around an average of 4.5% over the next 5 years and therefore the actual forecast is for ZERO REAL TERMS GAIN. Yes inflation will mean that house prices will stop falling in nominal terms, but the headlines of rocketing house prices are meaningless as a housing market that falls or does not rise in real-terms is STILL IN A BEAR MARKET. I.e. A failure for house prices to gain in real-terms will not make home owners feel richer and nor will it attract the frenzy of bull market buyers biding up prices well beyond the inflation rate, which will only start to occur when house prices reach a state of undervaluation which according to recent analysis could take as long as a another 6 years BEFORE house prices actually do start to rise significantly in real-terms and therefore set the scene for another bull market, but that is outside of the duration of the NHF's new 5 year forecast. More on this in the following article - UK Housing Bear Market Threatening Economic Deflation , and to follow in the August 08 update.

The current Market Oracle forecast as of August 2007 is for a fall in UK house prices of 15% over 2 years to August 2009, as illustrated by the below graph taken from an recent analysis of UK House Price Crash of Summer 2008. The expectation is that the pace of decline will start to moderate later this year, pending a anniversary update in August 2009.

By Nadeem Walayat

Copyright © 2005-08 (Market Oracle Ltd). All rights reserved.

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.

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.

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