The Forecast Issue
Fasten your seatbelts
It will be a bumpy time ahead, but not a hard landing
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The Brexit shock…
The vote to leave the European Union (EU) has unsettled the housing market, but the major driver of its performance will be the path of the economy. That is uncertain as the arrangements for decoupling from the EU and the effect this will have on trade have yet to be seen.
…will weaken markets…
In our central scenario we expect the economy to weaken and for this to affect house price growth and transaction levels as consumer confidence, household incomes and the labour market are affected. We expect UK house prices to see a growth of just 2.5 per cent in 2016 and -1.0 per cent in 2017, before recovering to 2 per cent in 2018.
...London and the South will feel it most… We expect the London markets to see the biggest falls in house price growth, particularly at the most expensive end of the scale. Some of that slowdown is entirely unrelated to Brexit. Higher stamp duty is taking its toll, but after several years of double digit price growth, expectations of future capital gain have also weakened, reducing demand. We expect to see some correction in these markets in 2016 and 2017 but a recovery in 2018.
… but the North and Midlands don’t escape
While London and South Eastern markets are expected to see the largest slowdown in prices, the North and Midlands are also expected to slow. Weaker economic growth takes part of the responsibility, but so too will uncertainty about export tariffs and inward investment, despite the support of a weaker currency.
Supply shortages will support prices while ultra-low interest rates will help to support demand…
The continuing lack of supply of property will remain a supportive factor for house prices across most of the country. And as the Bank of England has reduced rates and introduced more quantitative easing, mortgage finance will be available to help demand.
…which will support demand in the rental markets
Demand for private rented accommodation should remain strong. Uncertainty about the path of house prices and slower levels of activity are likely to increase the supply and demand for rented accommodation. Those unable to sell in a slower market may choose to rent their property to gain an income, while those moving may choose to rent for a while before purchasing, particularly if they expect a reduction in prices.
Uncharted territory brings big forecast uncertainties
There are higher than usual risks to these forecasts given the extraordinary nature of the challenges.
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