Monday, 19 March 2007

Welcome to the world of wishful thinking

There is old adage from the world of economics that says “prediction is difficult, especially about the future”. Nevertheless, the housing market is happily endowed with more than enough brave souls who are prepared to gaze into the future and predict what might happen to prices.

In the United States, the National Association of Realtors are always ready with a press release predicting a glorious future for real estate. It may be raining outside, but the NAR can always see the sun. Their embattled chief economist - David Lereah – has become a figure for ridicule. His repeated “calling the bottom” of the US housing market slump has become something of a national joke. In fact, Lereah has become a liability for the NAR, leading to increasing calls within the realtor profession for his dismissal.

However, the UK market isn’t crashing. Illusion still reigns supreme. Prices are racing ahead, unconstrained by income, financial prudence or rationality. Therefore, what are the latest housing inflation predictions for 2007?

The best place to look for predictions is always those with a vested interest in sustaining the housing bubble; the realtors, the banks and housing sector professionals. Talking up the market is an essential part of bubble maintenance. Before we have a closer look at next year’s forecast, it is worth remembering that in the UK, incomes are rising at about 3 percent a year; while inflation is running at a similar rate. Here are the numbers:

• Estate agent Savills is forecasting 7 percent house price inflation
• The mortgage lender Nationwide expects prices to rise by between 5 percent and 8 percent,
• The Halifax housing bank is forecasting a 4% rise.
• Council of Mortgage Lenders (CML) expects prices to rise by 7% in 2007 and 5 percent in 2008.
• Howard Archer - chief economist of Global Insight predicts a 6 percent increase in 2007.
• The Royal Institution of Chartered Surveyors believe prices will climb by 3% this year,

Now here is a strange thing – no one predicts a collapse, despite the fact that the UK central bank are strongly expected to increase interest rates in the face of rising inflationary pressures.

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