House prices and herding cats
Spend time thinking about house prices? Well, the fact of the matter is we all do at some point, but we should not obsess about it, the media, many estate agents, most buyers and some sellers have forgotten what really matters. Every year at Christmas and the New Year, we in the industry get peppered with new articles with titles such as "What will house prices do in 2020?", or "2020, boom or bust, prices up, prices down?" etc. The fact is, unless you are thinking of selling in 2020 it doesn’t really matter, and even if you were someone who did care about it, absolutely no one has any idea how it will actually play out, so listening to the forecasts of us experts is a waste of time.
Most commentators predict a rise of about 2% this year, but all it needs is a confidence event to turn that on its head. Take Brexit. If in February and March we see unexpectedly strong indices as markets react positively to our departure, then see that number rise. Equally the world is a very politically unstable place, and who would have thought that the leading Iranian General would be assassinated over Christmas by the US and us be standing on the brink of another war. Wars are never good for the economies of those involved. Wars in the Middle East are never good for the economies of most countries in the world. A run on oil prices and the uncertainty that comes with a new conflict will put pay to any positivity in the housing market this year, combined with the inevitable questions about us being isolated outside the EU. And there are the curved balls we yet don’t know about.
However, I come back to my original point. It should not matter one bit. That is to say, whatever happens with Brexit, or the geo politics that will always be there, always unstable, people should get on with their lives as normal, people should move home for the reasons people want to and need to move home for, and always have done. They always used to before data and technology made life over complicated and flooded us with information that made simple decisions harder to make.
When I started in the estate agency industry, no sellers or buyers ever discussed markets or house price forecasts or expressed some concern about some political event on the other side of the world that could affect the market in the UK. No one much did until the early 2000s when data at their fingertips entered their lives. The most important thing to flag here, is that those that do raise those as possible reasons not to move today, are making a very costly mistake.
Firstly, as I have already said, absolutely no one can accurately predict what prices will do as it is so dependent on other factors, so even though you stop and consider whether that incident on the front page of the Daily Mail is likely to affect prices, no one knows whether it will or won’t. It is like herding cats. Those that predict a 2% rise, if it ends up being near 2%, we won’t have got there in the way they predicted. If it ends up being -3%, they will all come out and say, "oh yes, we couldn’t have forecast X or Y would happen". Of course not, none of us could have. What they mean is “we predict 2%, unless something unpredictable happens that we couldn’t have possibly known about”. Like subprime lending perhaps. Like the Brexit Referendum. Like so many other smaller events that have an effect.
Ergo ignore the forecasts. Move for the reasons that are important and agents should get back to focussing on those things as well, the life changing events that matter to their clients that are always the things that start the conversation about moving and then get interrupted when a news article ask whether the value of Japanese fish prices could cause a housing market crash in the UK.
Secondly, as I have always maintained, the wobbly line of house price inflation always goes up. Look at any of the graphs on my Facebook feed. Prices always, without fail go up. Yes there are blips along the way, or wobbles in my line, periods of 6 or 12 months or so when prices are static or drop slightly, or by 15% in 2009, but predicting when these will happen, how deep they will be, how long they last is a complete waste of time, as much as trying to plot which way and how fast and for how long one of your cats takes that predictable yet unpredictable detour. I have seen hundreds maybe thousands of people tell me they are going to buy at the bottom of the market. I have never seen anyone get it right by design. A transaction at 19 weeks takes too long, prices when they rally change in a week. I know friends who have been telling me that for years and are still in rented, most can no longer afford the house they set out to buy and are now looking at something smaller, yet still trying to time the market!
So, what about the dreaded crash? Isn’t that worth considering? Well again no. Prices in 2009 dropped overnight by about 15%. Very few people who bought before then bought right before the crash, so most simply lost profit they had made before the crash and were no worse off. For those few that did, prices recovered to 2008 levels in under 5 years. However, who knows when the next one will be so waiting is a fool’s paradise. If prices each year pick up by 2, 3, 5% by the time you have stopped waiting you will have wasted that the opportunity to protect yourself against any crash. Buy now, accumulate 15% equity as soon as you can so if you lose 15% in a crash you lose nothing. Wait 2 years, gain only 10% because you thought about it too much and you lose money.
Crashes happen but the wobbly line always goes up.
But let us leave talk of profit and loss, that is the point. You shouldn't delay the move. Why? Simply because you are having a new baby or have that new job and need to shorten you commute or need that bigger garden as the kids have grown up, not because you are concerned about what the Nasdaq is doing. People always moved for emotional and practical reasons, lifechanging events, and that has not changed. Don’t let your decision be based on the likely success or failure of herding of load of cats from one end of a field to another. Predicting house prices is no easier, however convincing the herders may sound.