How accurate are property price and rental forecasts?

The honest answer is, not really!

There are two reasons for this:

The market is driven more by consumer confidence than anything else

It’s very tricky to predict what happens to property prices, especially in the short term. This is because the market going up or down is heavily influenced by consumer confidence of what is going to happen. This can be changed ‘overnight’ for example, if a major newspaper says that property prices are going to fall, buyers tend to hold off, waiting for prices to fall. Sellers then panic – especially if they have to sell – and drop their prices. So even if the market wouldn’t have fallen, just the mere ‘hint’ of prices falling can ‘turn off the tap’ and force price falls.

However, this ‘immediate’ impact on the market is starting to wane and the reasons for this are:-

1. Since before Brexit, someone, every year, or more has forecast prices will fall. The biggest one of these was during lockdown, when forecasters believed house prices would fall by 10-20% once the market ‘opened’ in May 2020. 
   
   However, people’s fear of prices falling had less impact than being stuck in a home they didn’t like. As a result, the market did the opposite to the forecasters and went up by double digits – especially for houses.
2. Over 50% of people now own their home outright – and have no mortgage, so they are less affected by the economy failing than they (and the market) have been in the past.
3. Many of the ‘workers’ that suffer during a recession such as catering, leisure etc tend to rent today rather than own a home. It’s more flexible and means they can be more mobile, or they just don’t earn enough to buy in the area they are living in.
   
   As such, during an economic recession, tenants tend to have a tougher time than homeowners.
4. In the last two recessions, government has stepped in to support homeowners, along with lenders, with schemes to help people during the credit crunch and during the pandemic.
   
   As a result, even if the economy isn’t doing too well, and even if the news forecasts downturns in the property market, buyers and sellers appear more concerned about putting a roof over their head rather than whether prices fall or not.
   
   And in today’s market, first time buyers have a huge incentive to buy, even with rates going up, as rents have been rising at a rate we’ve never seen before, so buying, for many, still appears to be a good option.

Property prices are quoted as ‘averages’ and cover large areas – as a result they are rubbish!

These are, quite frankly, a rubbish indicator of an individual’s property price in today’s market, and as a result, so are forecasted changes to prices!

According to the government’s Land Registry:

"As of March 2023, the average house price in the UK is £285,009, and the index stands at 149.48. Property prices have fallen by 1.2% compared to the previous month, and risen by 4.1% compared to the previous year."

The problem is that this ‘average’ of £285,009 distorts what prices are paid for in each area, let alone for an individual property.

To see how much this average misleads people, read our articles on ‘Why property price averages don’t help those buying and selling a home’.

And it’s the same for the forecasts. Forecasts are either for:-

1. The UK
2. Individual countries eg England, Wales, Scotland, Northern Ireland
3. By region eg North West, London

And we know from working on individual prices that just because London is forecast to rise by 5% or even 10%, there are some properties in London that will fall in value for lots of reasons, some that will stay the same and some that may even increase by double the forecast. And we have seen this pretty much every year for the last 15 years.

A good example is all the talk of ‘double digit’ growth during the pandemic must have been very frustrating for anyone living in Aberdeen where prices have fallen by 37% for flats and 25% for houses since 2015.

And this is despite the rest of Scotland seeing some really good price growth – some of which was predicted.

What’s the evidence that property price forecasts are not good?

We track and keep the forecasts from the likes of Savills, Knight Frank, Hamptons, JLL and CEBR.

You can see from the table below that Savills’ forecasts for 2022 in November 21 were way off – as were everyone else’s forecasts!

Basically, we expected the economy to not be too successful in 2022 and although rates were predicted to start rising towards the end of this year, forecasts expected us to go back to ‘normal’ rises of 3-5% during the year, however, in actual fact they rose from 5.7% in Scotland to 12.3% in the East Midlands.

So, what happened in 2022 to derail the forecasts? Basically, the start of the year through to the summer was extremely buoyant, much more so than expected. As a result, prices rose much more than forecast. They did start to slow around summer time – and with hindsight, August appears to be the peak of the market. However, next, the Liz Truss government managed to crash what was an OK market with the rapid impact on mortgage rates – and huge number of mortgage withdrawals. But even this didn’t stop 2022 being a much better performing year than expected due to good growth earlier in the year.

Looking at 2023, you can see above, the forecasts and actuals that we have to date. Again, forecasters have so far been much more pessimistic than the property price indices are showing to date.

However, with the latest news that bank base rates and mortgage rates may rise further than the 4.5-4.75% predicted, this could mean that when we get to ‘actual figures’ property prices in 2023 may well fall by the 10% most forecasters have predicted.

Property prices are individual – take forecasts with a pinch of salt!

In reality, the property price forecasts, certainly in the short term, are difficult to predict, mainly now because we are not seeing consumer confidence as easy to dent as it has been in the past.

To some extent, since the pandemic we are finding that just because the economy is having a tough time, this definitely doesn’t guarantee property prices will fall as they have in the past.

This is not just because of people’s confidence, it’s because over 50% of people own outright – without a mortgage – and when people buy, 50% are doing so with cash or a mortgage Loan to Value of less than 50%. So, in the past, these huge rises in mortgage rates would have crashed the market before, but even though people are affected, they are not as over geared as they have been in the past and many can either still cope or lenders have facilities to help them reduce or even take a holiday from their payments if needed. Basically lenders will do anything they can to prevent repossessions and it’s the latter problem that really causes property prices to crash.

Property transaction forecasts though are pretty good – and more important!

The main good news on the forecast front is that the number of properties we sell and the forecasts to sell are pretty good.

On average, we buy/sell 1.2 million homes a year, but this can vary from 800,000 during a recession through to 1.6mn when things really go bonkers – as they did during the pandemic.

Here are the actual sales for the last seven years and the forecasts for 2023:

So far, we are tracking to achieve around 1mn home sales, but we need to see the impact of the recent rate rises over the summer before we are 100% sure this will be the number of homes that are sold.

What about rental forecasts?

Typically, these have been much easier to predict because they tend to move in line with wages.

Below you can see how rents have increased over time from the government’s ONS charts.

Source: ONS

Typically, rents don’t rise or fall by more than +/-4%, apart from the last 18 months where we have seen larger wage rises than we have seen for a long time.

Source: ONS

Rental forecasts moving forward are expected to reduce down, but still perform better than they have historically.

Source: Knight Frank

Source: Hamptons

Also, we haven’t seen the huge supply vs demand problem as we are seeing currently. Sadly, this was very much caused by government policies which tried to restrict landlords from investing and indeed encouraged them to sell. Although the policy met its objectives, the government had failed to realise that this would worsen the housing crisis substantially and particularly those that rent with benefits, having had their Local Housing Allowance frozen, this has meant many simply can’t now find properties to rent and they have no choice but to live in temporary accommodation or on the streets.

Sadly, rents don’t get the attention from a forecast perspective as prices, and there are also two rental measures – for renewing rents (more ONS) versus new lets (Zoopla, Rightmove etc) the latter of which tend to be a lot higher.

So rental forecasts are even less helpful than the property price ones!

What’s the conclusion on forecasts

Basically, they have some uses, just to know what the experts think will happen, but property prices/rents are so individual to properties and their location, they aren’t much use to individual buyers, sellers and investors.

What’s more useful is watching what happens to marketing prices over a few months – are they going up or down, is the time it takes to sell going up or down? And looking at sold property price data over time, seeing how the property performed during the credit crunch, how long it took to recover to previous heights and how well it’s done since then.

Read our latest property price and rents for the UK, country, regions and cities/towns, here.  

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