Property forecast 2012
RICS has just provided its house and property price forecast for 2012 and it is zero percent.
We tend to agree with this, although we have a slightly more negative view.
The real issue, as the graph shows, is that real wages are falling (driven down by inflation) and therefore, even a zero percent change in property prices in 2012 reflects a fall in real value (ie. the same amount of money will buy less at the end of 2012 than it will at the beginning).
The RICS forecast for 2012 has unemployment edging upwards which will dampen demand and result in weak property price demand.
The only reason the bottom isn’t falling out of the housing market in 2011 or 2012 is because interest rates are being kept at the incredible low rate of 0.5%.
In 2013, from February or March, the central banks have given notice that they will start to raise rates. How and when that happens will impact on the property market and house prices.
We expect that for political and macro economic reasons (ie tax payers not wanting to bail out failed banks with too many badly priced mortgages) the rates will be kept low long enough to allow banks to recover (and / or raise money) and slowly write down their debts.
Either way, we are looking at negative property price growth of around 3% for 2011 and zero for 2012. Although, we wouldn’t be surprised if property prices in 2012 actually fell by 3% in nominal value and around 5.5% in real terms (adjusted for inflation).
No matter how you look at it, with London property prices now weakening, there is no investment prospect for property in 2011 or 2012 either.
Keep your cash in the bank on long term deposit, or if you have too much, then look at business angel investment.
Agree that property prices are unlikely to recover in 2012, but is putting money in the bank earning low interest really an alternative to investing in property? There are property markets overseas that still offer a good return on investment in the long term. Also there are signs that in some locations property prices are beginning to recover.
Hi Brett – I wish I could agree…
Sterling has been weak for a long time now – and is beginning to recover – hence, any actual gains in foreign markets will be wiped out by currency losses.
Spain – for instance, could lose 35% in currency value if the Euro were to split up – not nice if you have a 20% mortgage as it immediately puts you into negative equity.
My view is that most prices in Western Europe were driven forward by a credit bubble that hasn’t fully unwound yet – and even when fully unwound, there is slim likelihood of a similar bubble ocurring in the next 5 to 10 years.
You can now get 5% on long term money – and inflation is falling – this is the place to keep your money until property prices truely fall.
The alternatives for UK investors are probably angel investing (see http://www.iBusinessAngel.com) because of the ‘match your money’ tax incentives for 2012.
Br
Neil