PropertyInvesting.net: Property Investment Special Reports

245: 2009 Prediction (and 2008 look-back)

PropertyInvesting.net team

PropertyInvestment.net predict property prices will drop for the whole of 2009 (in order of decrease):

• North -10%                      
• West Midlands -10%                    
• Wales -9%           
• Northern Ireland -9%    
• East Midlands -9%       
• North-West -9%
• Yorkshire -9%
• East Anglia -8%
• South -7%
• Greater London -7%       
• London-City/West -7%   
• London-peripheral -6%
• South West -6%
• Scotland -5%                

Other criteria

• US Dollar to the UK£    $1.5 / £1  by Q4 2008
• UK£ to the Euro    £1 / 0.82 Euro    
• Oil price  $40/bbl early 2008 rising to $70 by end 2009     
• UK Gas price 50p/therm   
• UK Interest Rates – drop to 1% Feb 2009, then on hold until Oct 2009
• FT by end 2008   4700   (rising from 4300 Dec 2008)
• UK Inflation  dropping to 1% by June 2009 then rising to 1.5% by end 2009
• UK GDP  -1% early 2009 rising to 0% by end 2009
• Security outlook – worsening – far more tensions in Middle East and increase in tensions South Asia.  
• Euro interest rate – dropping to 2% by April 2009 then on hold  
• US Interest rates held at 1% through 2009
• UK unemployment – increase by 20% from 2008 levels
• Wage inflation – drop from 3.8% 2008 to 2.8% end 2009
• GDP growth London 0%, North 0%, Scotland 0.5%
• GDP China 8.5%, GDP India 6%, GDP Africa 2%, Global GDP 1.5%, UK 0%, USA 0.5%, Euroland 0% - as a whole over 2009

Unfortunately, the economic turmoil globally will lead to increase in tensions in the Middle East and South Asia. Oil prices dropping to $35/bbl mid Dec 2008 have been a trigger for this - plus less trade with western economies because of the financial turmoil and global slowdown. Less money in the Middle East and South Asia with regret is likely to feed through to increasing security issues.

In USA and UK - the effects of almost zero % interest rates, spread rates on mortgages reducing, oil prices staying relatively low and fiscal stimuli (infra-structure spending) and likely to see these economies kick-start by mid 2009. Meanwhile, higher Euro rates, hang-over from boom years and lack of fiscal stimuli will likely lead to severe recessions in Italy, Spain, Ireland, Portugal and Iceland and possibly Greece. France and Germany will likely come off better with Nordic countries like Norway and Sweden staying relatively stable.

But expect further period of turmoil in Q3 2009 as UK and US recovery is called into question. House prices should however start a mild bounce back after steep falls in first half of 2009, some time Sept 2009.

Property areas to avoid - Middle East, South Asia. Areas to consider purchase when bottom of market reached (as long as oil prices stay at or below $70/bbl) - USA (NE, California, Florida, Texas),  UK (south/London).

Look-Back on 2008 Predictions

Enclosed for good order is a look-back are our predictions from 17th Dec 2007 for the year 2008. We do this look-back every year – and we don’t want to shirk away from what we said. In the prior five years we had been remarkably accurate. Alas there were not many people that predicted outright recession and property prices collapsing.

Compared with the bulk of forecasters, we were pretty close on property pices (again) as you can see. Note a quote from David Smith's website (28 Dec 2008) www.EconomicsUK.com  to give this a bit more substance.

"A year ago, just about the gloomiest forecast for house prices you could find among economists was for a fall of 5% in 2008. Data from the main lenders, Halifax and Nationwide, point to a fall about three times that, though the FT-Acadametrics index is down by a more modest 8%."

So compared with the well respected FT-Acadmatrics index, we were very close.

It was looking uncertain and rather bleak in December 2007, but we believe the sky-rocketing oil prices de-stabilized the global economy and sent us into recession. It may have happened anyway, but it sure didn’t help – with inflation rising to 4.7%, interest rates to 5.75% whilst financial turmoil spread like contagion from USA around the globe.

PropertyInvestment.net predict property prices will drop (in order of decrease):

• North -8%                       Actual Range -8 to -13%
• West Midlands -7%                    - ditto -
• East Midlands -5%       
• South West -5%
• North-West -4%
• Yorkshire -4%
• East Anglia -4%
• South -4%
• London-peripheral -3%
• Greater London -2%        Actual range  -5%  to -12%
• London-City/West -1%    Actual range  -5%  to -12%
• Northern Ireland +1%     Actual range   -5%  to -15%
• Wales +2%           
• Scotland +3%                 Actual range +3% to -5%

Overall, house prices dropped an additional 6% compared with our prediction over the full year. General regional trends were reasonably accurate. Note – there is a large difference in the range of reported house price drops – as high as 13+% and as low as zero in some areas of London.

Other criteria

• US Dollar to the UK£    $1.9 / £1  by Q4 2008  (actual $1.5 – not close - recession was not built in)
• UK£ to the Euro    £1 / 0.72 Euro     (actual 0.82 Euro – not close)
• Oil price  $125/bbl by end 2008        (peaked at $147/bbl 9 July, then crashed to $40/bbl end Dec – accurately predicted massive rise but not the subsequent crash)
• UK Gas price 55p/therm    (yes – spot on)
• UK Interest Rates  5.5% until Feb, then 5.25% for remaining 2007 (way off - accurate until July 2008)
• FT by end 2008   6200  (similar to 2007, slight drop)   (way off, crashed to 4300 by 2008 close – was as low as 3450 - we exected a drop, but not of this magnitude!)
• UK Inflation  2.5% Jan 2008 staying around 2.5% until end 2008  (year end correct, but rose to 4.7% mid year and likely on the way down to 1% by mid  2009)
• UK GDP  2.5% early 2008 dropping to 1.6% by end 2008 (early 2008 was spot in, but GDP crashed to zero or negative by year end)
• Security outlook - improving - tensions in Middle East continue to subside (accurate, until November – global recession kicking in and tensions started mounting December) 
• Euro interest rate  4.25% through 2008  (okay until Q3 2008, the they dropped to 2.5%)
• US Interest rate 5% early 2008 dropping to 4.25% by end 2008 (as GDP growth slows from 2.0% to 1.3% by end 2008 before strengthening again) – they crashed to 1% by end 2008, not close
• Unemployment - slowly rising, Employment staying level – almost, but employment now dropping – worse than expected  
• Wage inflation  3.8% (4.0% including bonuses) – accurate until Oct 2008, uncertain afterwards 
• GDP growth London 2.5%,  GDP growth North 1.0%, Scotland 1.5%  - general trend correct, but GDP far weaker, particularly London by end 2008 (overall GDP averaged 0.8%).
• GDP China 11%, GDP India 8.5%, GDP Africa 4.5%, Global GDP 3.5%  China was 9%, India 7%, Africa 4%, Global 2.8% - no far off, but recession kicks in end 2008.

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