612: 2018 Predictions (and 2017 Predictions Look-back)
01-01-2018
2018 Predictions (and 2017 Lookback)
01-01-2018
PropertyInvesting.net team
2018 Predictions (and 2017 look-back)
More objective guidance and insights for property investors. Our aim is to help you improve your investment returns, flag key risk areas and stimulate strategic thought so you can position your portfolio to maximize gains, for the thousands of daily visitors to the website and the thousands of people signed up to your Newsletter. This Special Report describes our 2018 Predictions and takes a Look-back Review of our 2017 Predictions for good order.
We start with our view on 2018 property prices in the UK followed by economic criteria. We’ve been performing this analysis for the last ten years now. All our previous predictions can be reviewed on the website in our Special Reports section, so you can judge for yourself how accurate we have been.
589: 2017 Predictions (and 2016 look-back)
557: 2016 Prediction (and 2015 look-back)
553: 2015 Prediction (and 2014 look-back)
496: 2014 Prediction (and 2013 look-back)
456: 2013 Prediction (and 2012 look-back)
409: 2012 Prediction (and 2011 look-back)
356: 2011 Prediction (and 2010 look-back)
301 2010 Prediction (and 2009 look-back)
245 2009 Prediction (and 2008 look-back)
179 2008 House Price Predictions – Global
102 Property Price and Economic Predictions for 2007
For 2018, there will be a number of criteria that will pull property prices one way or the other, which we outline below:
Positive Criteria for Property Prices in 2018
· Severe lack of house building, particularly due to Brexit making builders more risk averse and raising building costs
· Elizabeth Line (Crossrail 1) to open in London 2017-2019 – possible Crossrail 2
· Fairly robust rental market due to buy-to-let property shortages particularly in London and southern England – though lower net migration keeping lead on demand
· London likely to continue to boom with expanding population and inward m
igration despite the Brexit doom-mongers and Crossrail opening
· Booming UK population, birth rate and immigration – with subdued emigration
· Pent up demand from years of low market activity 2008-2012 – people needing to move
· Continuing flood of wealthy global citizens escaping economic problems – in 2017 - this is likely to be from Saudi-Iran (proxy wars), South Korea (North Korea threat), South Afrtica and Venezuela (economies tanking), mainland Europe (escaping poor jobs prospects) and China (fear of government asset seizures, super-rich hedging)
Negative Criteria for Property Prices in 2018
Overall, we believe the negative factors slightly outweigh the positive factors hence this points to stagnant or even slightly declining house prices. The twin threats of a Labour government and Brexit turmoil will definitely put a dampener on property demand and lead to lower building levels – feeding through to further supply shortage in the coming years. The chance of the Tory minority government collapsing and Labour getting into power in the next two years is probably around 35% - quite high.
The house price ripple effect will continue to fan out from London – moving through places like Leicester/Derby, Birmingham, Manchester, Leeds to places like Liverpool, Newcastle, West Cornwall and Cumbria. The largest house price increase are likely to be in areas 100-170 miles from London, with housing shortages in East England driving prices up. Firther healthy increases in house prices are expected in London’s lower priced suburbs like Ilford, Dagenham, Milton Keynes, Hatfield and Essex and north-eastern Kent - catching up with the rest of London. Some areas like Acton, Abbey Wood, Forest Gate, Ealing and Paddington will further benefit from the opening of the Elizabeth Line (Crossrail 1). Areas with strong business growth such as Slough, Reading
, Maidenhead, Shoreditch-Whitechapel will also see prices robustly rising.
2018 Predictions
Property Price Predictions
1. London +2% (West London +2%)
2. SE England +3%
3. East Anglia +2%
4. Scotland +2%
5. SW England +2%
6. NW England +3%
7. Midlands +3% (East Midlands +4%)
8. Wales +1%
9. North England +1%
10. Northern Ireland -2%
11. Yorkshire +3%
Note: Published CPI and RPI inflation will start year at 3% and rise to 4% by end 2018 as the effects of the oil price feed through (though real inflation will be more like 4.5%).
Rents
Rent rises will be in line with inflation – rental property shortages will be counteracted by a reduction in net migration to levels of around 200,000 by end 2018 (down from 360,000 mid 2016). Draconian tax increases on buy-to-let landlords will also causes a tightening of the rental market particularly in London and SE England.
Other criteria
· US Dollar to the UK $1.7 / £1 – Dollar increases slightly against Sterling
· UK £ to the Euro £1 / 0.9 Euro – Sterling slightly recovering from lows late Nov 2017
· Oil price will drop from $63/bbl mid Dec 2017 to $50/bbl by mid 2018 before rallying to $
70/bbl by end 2018 as a massive tightening and stocks draw commences mid 2018 – from the dearth of new projects coming on stream.
· UK Gas remains firm at price 43p/therm
· UK Interest Rates – two further interest rate increases of 0.25% forecast for 2018 bringing base rates to 1% by end 2018 as inflation hits 4%.
· FTSE100 index rises to around 7700 by end 2018 as inflation takes hold
· UK Inflation CPI starts year rising from 3% end 2017 to 4% by end 2018 – largely due to increases in oil price and Sterling value erosion (more expensive imports)
· UK GDP stays around 2.0% - continuing the existing trend – driven by population increases
· Tensions between Saudi Arabia and Iran increase – possible direct war between these two countries (could be triggered by a mistake). Yemen continues to be a major problem area. Possible new front by Putin created out of the blue - eastern Estonia (Russian border). US support for Israel Jerusalem continues to increase tensions between Israel and its neighbours. North Korea and US continue to confront each other over North Korea's nuclear ambitions. Hotspots being US-North Korea, US-China (South China Sea), US-Iran, Israel-Palestine.
· Euro interest rates – possible rise by 0.25% sometime in 2018. 
· US Interest rates increase one further 0,25% step in 2018.
· UK unemployment – stays around 5% stable
· Wage inflation – ~2.2% throughout 2017 in both private and public sectors – well below inflation at 3-4%
· GDP growth London 2.6%, North 2.0%, Midlands 2.0%, Scotland 1.2%. Wales 1.0% (overall 2.0% for 2018)
· GDP China 5%, GDP India 6.5%, GDP Africa 2%, Global GDP 2.2%, UK 2.0%, USA 3.6%, Euroland 2.5% - as a whole over 2018
· Gold stays around $1250/ounce level, silver stays at $16/ounce level
USA debt situation – Lowering tax burden, higher US oil production and business friendly regulation will help lift GDP growth to around 3.8% - well above the trend of the last 10 years. This should lift the pressure on the US dollar and debt situation – unless a big recession starts. Trump’s spending spree on infra-structure and military will also help business. Unemployment is likely to drop. Threat of war with China, Russia, North Korea and/or Iran however will increase significantly in 2018
Inflation – Increases due to higher oil prices – in the UK this will mean interest rates will likely rise further.
Russia: The sanctions, fairly low oil prices and financial stresses have led to recession and 
more pressure on President Putin – who expands military efforts to boost/maintain popularity at home with military incursions in the Middle East. Eastern Estonia could be another target for subversive or outright territorial invasion. The real focus for 2018 is Russian backing or not of Iran against a US backed Saudi Arabia.
Middle East: House of Saud finances improve now oil prices have risen above $60/bbl – though budget does not balance until oil prices are around $90/bbl. Continued proxy war with Iran in places like Yemen, Iraq – the ISIS threat or more or less defeated. Middle East and North Africa continue to be unstable with bad situations continuing in Libya.
China South China Sea: Further military spats and escalations continue over disputed islands with USA at the forefront along with Japan – high risk of some sort of naval war between USA (Trump) and China over the islands.
The Trump Effect: Donald Trump will continue to become more and more unpredictable. The USA's relationship with China and Venezuela in particularly will deteriorate. His relationship with Russia will also seem to deteriorate. Presidential running of the US via Twitter - soundbites with often dangerous rhetoric will continue. Gold-silver prices will probably stay flat. A nuclear arms race will build momentum in 2018 with big increases in military spending in USA, China and Russia. Putin and Trump and their egos will spar with each other more regularly through 2018. Global casualties of Trump's policies are likely to be China and Venezuela, also Iran and possibly Cuba, North Korea and other socialist countries. Trump's policies will continue to inflame tensions in Israel and with the Palestinians. The Middle East is likely to feel threatened by Trump and his cohorts and policies.
Note: Just like last year’s prediction, sometime in the next 6 months to 4 years we expect a real economic-financial crisis in western developed nations caused by the US bond market meltdown. At this time, gold and silver prices will go ballistic (silver from $17/oz to $400/oz and gold from $1300/ounce to about $6400/ounce). The Dow Jones may rise, but inflation adjusted real terms will decline – still in an overall cyclical bear market. 
UK Politics
Brexit negotiations will continue to dominate the news – with continued perceived Tory disarray and big arguments on what Brexit means, and what the final trade agreements will look like. More bitterness from all sides as the country continues to be spilt on this key issue - Terresa May will continue to be pulled left, right and centre with continued levels of turbulence as the light starts to appear at the end of the tunnel by mid-2018. Labour will be waiting in the wings to seize power if/when the Tory part trip up.
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Look-Back on 2017 Predictions
Property Price Predictions
1. London +1% (West London -1%) Actually 0% - very close
2. SE England +3% Actually 2% - very close
3. East Anglia +2% Actually 3% - very close
4. Scotland -1% Actually +2% - underestimated
5. SW England +3% Actually 3% - spot on
6. NW England +2% Actually 3% - spot on
7. Midlands +2% (East Midlands +3%) Actually 4% - close
8. Wales +1% Actually 1% - spot on
9. North England +1% Actually 2-3% - close
10. Northern Ireland -1% Actually -3% correct downward trend
11. Yorkshire +1% Actually 3% - slight underestimate
Note: Published CPI and RPI inflation will be ~2.2% (though real inflation will be more like 2.8%). CPI started the year at 2% and rose to 3% - close though slight underestimate by year end.
Rents
These will rise above house price inflation as buy-to-let tax increases and stamp duty on buy-to-let property will lead to far lower investment in private rental property, and higher costs for landlords - hence driving rents up as all these measures worsen the housing crisis and tighten further the rental supply. Rents more subdued than predicted mainly because of net migration dropping to 250k from 355k caused by Brexit.
Other criteria – please assess yourself how close we were:
· US Dollar to the UK $1.7 / £1 – Dollar increases slightly against Sterling
· UK £ to the Euro £1 / 0.88 Euro – Euro-Sterling tracking fairly closely in 2017
· Oil price start the year at $52bbl, rising to $63/bbl by end 2017 Spot on
· UK Gas remains firm at price 43p/therm
· UK Interest Rates – one interest rate increase of 0.25% forecast for 2017 though there could also be more currency printing despite a slight increase in interest rates
· FTSE100 index stays around 7000, same as 2016
· UK Inflation CPI starts year rising from 1.1% to 2.8% by end 2017 – largely due to incre
ases in oil price and Sterling value erosion (more expensive imports)
· UK GDP stays around 2.0% - continuing the existing trend – driven by population increases
· Ongoing security situation continued to be grave in NW Iraq and eastern Syria though improving towards end 2017 as Russian and other forces erode ISIS control over the desert territory – Assad remains in power supported by Putin. Tensions between Saudi Arabia and Iran continue. SE Ukraine continues to quieten down, Yemen problems continue. Possible advance-tensions in eastern Estonia (Russian border). US support for Israel increases - worsening the tensions in Levant. US reverses course on Iranian sanction - amid concerns on their nuclear ambitions. North Korea and US confront each other over North Korea's nuclear ambitions. Hotspots being US-North Korea, US-China (South China Sea), US-Iran, Israel-Palestine, Russia-US-Syria-Turkey.
· Euro interest rates – staying at record lows throughout 2017 (deflation threat, leading to continued bond purchases)
· US Interest rates stay the same through 2017 (after rising slightly Dec 2016) - with possible QE4 if US economy slows down
· UK unemployment – stays around 5.5%
· Wage inflation – ~2.2% throughout 2017 in both private and public sectors
· GDP growth London 3.2%, North 1.0%, Midlands 1.7%, Scotland 0.2%. Wales 0.5% (overall 2.0% for 2017)
· GDP China 5%, GDP India 6.5%, GDP Africa 2%, Global GDP 2.2%, UK 2.0%, USA 3.1%, Euroland 1.3% - as a whole over 2017
· Gold stays around $1250/ounce level, silver stays at $16/ounce level
USA debt situation - Low oil prices albeit rising and higher GDP growth improve US finances over 2016 – even though debt levels remain very high and increasing. Dollar value remains well supported by higher growth and newly found shale-oil that is economic at prices above $50/bbl. Trump starts spending spree on infra-structure and military. Trump reduces taxes for the top wealth 35% that boosts the US economy and spending.
Inflation – Increases due to higher oil prices – in the UK this will mean interest rates may rise particularly if Sterling declines to levels deemed very inflationary (e.g. £1 = $1).
Greece, Portugal, Ireland, Spain and Italy – finances continue to improve slowly albeit the pace weakens as oil prices rise increasing oil import costs. German economy is hit by confidence prior to the German elections and tensions with Russia – and possible Euro zone break-up – referendum in other countries.
Russia: The sanctions, low oil prices and financial stresses lead to recession and more pressure on President Putin – who expands military efforts to boost/maintain popularity at home. Eastern Estonia could be another target for subversive or outright territorial invasion. Ukraine rumbling away at low level, with real focus being on Syria/NE Iraq for 2017.
Middle East: House of Saud finances improve slightly as oil prices rise from $52/bbl to $60/bbl – though budget does not balance until oil prices are around $90/bbl. Continued tensions with Iran and ISIS insurgency in the region. Middle East and North Africa continue to be unstable with bad situations continuing in Libya and Yemen.
BRIC: Brazil economy starts slow improvement as oil and commodity prices rise (Petrobras escapes default for now) – 3% GDP growth. Indian economy continues to boom off the back of global trade with western nations and gigantic population explosion – 6% GDP growth.
China South China Sea: Further military spats and escalations continue over disputed islands – this time with USA at the forefront – high risk of some sort of naval war between USA (Trump) and China over the islands.
Large bankruptcy: Bankruptcy or default in a number of European banks – in Italy, and possibly German, France and Spain.
The Trump Effect: Donald Trump will become more and more unpredictable. The USA's relationship with China and Venezuela in particularly will deteriorate. Initially his relationship with Russia will seem satisfactory but then this will also deteriorate by end 2017. It will be Presidential running of the US via Twitter - soundbites and often dangerous rhetoric. This will send gold and oil prices rising. A nuclear arms race will start in 2017 with big increases in military spending in USA, China and Russia. Putin and Trump and their egos will spar with each other more regularly towards the end of 2017. Global casualties of Trump's policies are likely to be China and Venezuela, also Iran and possibly Cuba, North Korea and other socialist countries. Trump's policies will inflame tensions in Israel and with the Palestinians. The Middle East is likely to feel threatened by Trump and his cohorts and policies.
Note: Just like last year’s prediction, sometime in the next 6 months to 4 years we expect 
a real economic-financial crisis in western developed nations caused by the US bond market meltdown. At this time, gold and silver prices will go ballistic (silver from $16/oz to $400/oz and gold from $1240/ounce to about $6400/ounce). The Dow Jones may rise, but inflation adjusted real terms will decline – still in an overall cyclical bear market.
UK Politics
Brexit negotiations to dominate the news – with disarray and huge arguments on what Brexit means, whether we should allow free movement of capital and people – and whether the UK should remain in the Customs Union or not – more and more likely to be a “hard” Brexit – an “acrimonious divorce”. Terresa May will be pulled left, right and centre – and will look more and more foolish in the world's eyes through 2017 – with possible resignations and replacement by Boris Johnson if pressure becomes too unbearable for her. SNP will keep threatening another Referendum, but this would not be worthwhile unless they saw oil prices higher than $100/bbl – this might embolden them. Meanwhile Labour will continue to shrivel and die as a pollical force as their policies are in disarray and Jeremy Corbyn's leadership results in the Labour party transforming into a protest party rather than a real opposition party. The Tories may have s snap election in 2017 - a 40% chance - particularly if they feel they need a mandate for a hard Brexit. In any case they can look forward to another 4 year term to 2020 with the outlook for the Tories very good moving into the 2020s – mainly because few people trust Labour with the economy, particularly with Corbyn as leader and the Brown legacy of financial mismanagement.
1. London +4% (West London +2%) Actual -0.1 % (West London -2%) Brexit impacted
2. SE England +6.5% Actual 4.5%
3. East Anglia +8% Actual 6.4%
4. Scotland +0% Actual 0.0%
5. SW England +6% Actual 6.6%
6. NW England +4% Actual 2.7%
7. Midlands +6% Actual 5.0%
8. Wales +4% Actual 4.1%
9. North England +3% Actual 0.1%
10. Northern Ireland +6% Actual 0.5%
11. Yorkshire +3% Actual 1.8%
Note: Published CPI and RPI inflation will be ~0.5% (though real inflation will be more like 1.5%). Spot on – actual CPI inflation was 0.5%
Rents
These will rise rapidly above house price inflation as buy-to-let tax increases, stamp duty on buy-to-let property and lead to far lower investment in private rental property, and costs for landlords - hence driving rents up as these measures worsen the housing crisis. Correct – rents rose ~3%.
Other criteria
· US Dollar to the UK $1.47 / £1 – Dollar increases slightly against Sterling - Incorrect
· UK £ to the Euro £1 / 0.73 Euro – Euro-Sterling track fairly closely in 2016 – Sterling lost 10% of its value due to Brexit
· Oil price starts year at $37bbl, rising to $50/bbl by end 2016 – Oil prices dropped to $29/bbl in Jan 2016 then rose to 52$/bbl by end 2016 – correct.
· UK Gas price 38p/therm – Gas prices recovered to 40p/them by end 2016 - correct
· UK Interest Rates – staying at 0.5% throughout year - equally likely to print money as increase interest rates – Correct – spot on
· FTSE100 index stays in range 6000-6300 – FTSE100 rose to 7000 mainly due to Brexit currency value reduction
· UK Inflation CPI starts year at 0% then rises to 0.5% by end 2016 - correct
· UK GDP staying around 2.5% - continuing existing trend – Correct (despite Brexit, still growing at 2% per annum by end 2016)
· Ongoing security situation stays grave in NE Iraq and eastern Syria – with US/French/UK/Russian and Middle Eastern coalition forces weakening ISIS. Tensions between Saudi Arabia and Iran. SE Ukraine continues to quieten down, Yemen problems continue. Possible advance into eastern Estonia. All Correct.
· Euro interest rates – staying at record lows throughout 2015 (deflation threat, leading to continued bond purchases) - Correct
· US Interest rates stay the same after rise mid Dec 2015 – possible QE4 if US economy slows down – Almost correct, only rose a meagre 0.25% in Dec 2016
· UK unemployment – stays around 5.5% - Correct
· Wage inflation – ~2.6% throughout 2015 in both private and public sectors - Correct
· GDP growth London 4.5%, North 1.5%, Midlands 2.1%, Scotland 0%. Wales 1.5% (overall 2.4% for 2015) - Correct
· GDP China 4%, GDP India 5.5%, GDP Africa 1%, Global GDP 2%, UK 2.5%, USA 2.2%, Euroland 1% - as a whole over 2016 - Correct
· Gold stays around $1090/ounce level, silver stays at $14/ounce level – rose to $1130/ounce by year end (silver $15.80/ounce)
USA debt situation - lower oil prices and higher GDP growth improve US finances over 2016 – even though debt levels remain very high. Dollar value remains well supported by higher growth and newly found shale-oil that is economic at prices above $50/bbl. Correct
Inflation – very subdued because of crash in oil prices – in the UK this will mean interest rates do not need to rise as soon as they would otherwise. Correct.
Greece, Portugal, Ireland, Spain and Italy – finances continue to improve getting a boost from low oil prices and reduced oil import costs. German economy is hit by lower trade with Russia, though lower oil prices feeding through to lower inflation leads to financial services performing better than expected. Broadly correct.
Russia: The sanctions, low oil prices and financial stresses lead to recession and more pressure on President Putin – who expands military efforts to boost/maintain popularity at home. Eastern Estonia could be another target for subversive or outright territorial invasion. Ukraine rumbling away at low level, with real focus being on Syria/NE Iraq for 2016. Absolutely Correct.
Middle East: House of Saud under huge pressure from low oil prices, tensions with Iran and ISIS insurgency in the region. Middle East and North Africa becomes more unstable with worsening situation in Libya, Yemen and Saudi. Correct – Saudi capitulated in Nov and agreed to cut oil production to raise oil prices.
BRIC: Brazil economy continues to suffers from high debt at Petrobras (possible Petrobras default) – 2% GDP growth only. Indian economy booms off the back of lower oil prices and global trade with western nations – 6% GDP growth. Correct.
China South China Sea: Military spats continue over disputed islands – all the time risking escalation to war (China-Japan-US navy). Correct.
Large bankruptcy: Possible bankruptcy or default of Petrobras and Rosneft – suffering from ~$36/bbl oil prices and massive debts. Both respective government are unable to bail them out. Indeed, Brazil pressure mounted and political turmoil – with indictments in Petronas and government – over correction allegations
Note: Just like last year’s prediction, sometime in the next 6 months to 5 years we expect a real economic-financial crisis in western developed nations caused by the US bond market meltdown. At this time, gold and silver prices will go ballistic (silver from $14/oz to $400/oz and gold from $1080/oz to about $6400/oz. The Dow Jones may rise, but inflation adjusted real terms will decline – still in an overall cyclical bear market. No crisis just yet – was not really predicted in 2016.
UK Politics
The EU Referendum will take place mid 2016 – it will be a very close run result and its too uncertain to call – 50/50 either way. Correct – voted for Brexit 52% to 48% despite media hype saying 85% chance of Remain winning.
If the UK leaves the EU, then the SNP will demand another Referendum – then they would leave the UK by end 2017. If the UK stays in the EU, SNP are likely to continue within the Union. The Tories will campaign on keeping within the EU and keeping the Union together. They only have 50% chance of success. Meanwhile Labour will continue to implode - with Jeremy Corbyn's leadership resulting in the Labour party transforming into a protest party rather than a real opposition. With SNP assent and Labour demise, regardless of a Scottish Referendum, Tories line up for another 5 year term in 2020. All correct.
The economic scenario most likely to be beneficial is staying within the EU - though this is also uncertain and would depend on whether the Tory government reacted by implementing business friendly policies post Brexit that would entice large foreign investment flows from around the world to offset less EU trade. Thought to be correct at this time - time will tell.
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