After market experts were largely wrong footed by the unexpected house price rises in 2009, the consensus for 2010 was largely pessimistic (though with only small falls being predicted). Some like the Council of Mortgage Lenders stated they felt market too unpredictable to make forecasts. – Quite a sensible approach if not particularly helpful.
Perhaps more interesting than expert predictions is the expectations of ordinary consumers. If consumers are anything to go buy, the UK Housing market will be buoyed by an upswing in market sentiment, with a majority of respondents now expecting house prices to rise this year.
A survey by Rightmove, the property website, found that 53pc in the UK believe house prices will rise over the next 12 months, compared with just 10pc last year. That is quite a significant improvement in expectations and has important implications for housing market.
To some extent expectations of house prices can be self-fulfilling.
- If people expect prices to rise, it encourages people to buy, rather than wait for them to fall
- It encourages buy to let investors back into market.
- Prospect of rising house prices makes banks more keen to lend (and avoid negative equity of falling house prices)
Of course, consumer expectations of house prices can often be proved wrong. As the above data shows, only 10% of people expected house prices to rise in 2009, but, house prices did rise.
I doubt a majority of homeowners were expecting the slump in house prices until it actually occured.
Expectations of house prices are often based on past and current data. Thus if house prices have been falling, this strongly influences expectations, the fact house prices have risen recently has helped boost confidence.
There are factors which may make the present confidence appear misplaced – recovery is weak, prospect of fiscal tightening, house price to earnings ratios are still expensive. But, the improvement in confidence is an important factor in moving the housing market back to more normality.
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