While there were more than enough reasons already to worry about whether the UK property sector was heading for a boom and bust scenario, today’s announcement that Rightmove has upgraded its forecasts for house price growth for 2013 is alarming. Initially the company had forecast 2% growth in UK house prices for 2013 although this was then upgraded to 4% and today the company has announced it believes growth will be 6%.
The ongoing change in the forecast growth of UK property prices perfectly illustrates the difficulty in looking too far ahead with any confidence. We are looking at a company which advertises in excess of 800,000 properties per annum and a company which certainly has its finger on the pulse. If Rightmove has changed its forecast for 2013 so drastically, as we move into the final quarter, what hope is there for other less well informed property companies?
Why the sudden increase in forecast growth?
While the forecast for the full year has been increased to 6% it is worth noting that asking prices fell by 1.5% in September following on from a fall of 1.8% in August. This therefore makes the forecast growth of 6% for the year as a whole even more surprising, although it is worth taking into account that year-on-year growth is currently at 4.5%.
Quote from PropertyForum.com : “The influential Royal Institute of Chartered Surveyors (RICS) has today issued a report which calls upon the Bank of England to take control of UK house prices and effectively dictate their movement in the future.”
There is no doubt that the government’s Help to Buy program is fuelling demand for UK property, making finance available for many who would otherwise have been unable to participate, as well as ongoing economic strength in the south of England. Interestingly Rightmove also highlighted the fact that northern markets, very often the most depressed property sectors in the UK, are now starting to move into positive territory and this is expected to continue for the foreseeable future.
Bank of England under pressure
Last week’s announcement that the Royal Institute of Chartered Surveyors (RICS) believes that annual house price increases should be capped at no more than 5% has put massive pressure on this week’s meeting of the Bank of England committee. Wednesday’s meeting will no doubt be dominated by the UK property market and the fact that house prices are continuing to push ahead despite threats from the authorities to rein in finance and take some of the momentum out of the market.
There is no doubt that general investors, and more specifically property investors, will be looking through the minutes of the Bank of England meeting when they are made available. This is perhaps the first major test of Mark Carney’s stewardship of the Bank of England with a determination from investment markets to test his resolve. So far he has performed admirably in the face of stiff questioning from MPs and awkward questions in the financial press.
It is alarming to see Rightmove increase its initial forecast for growth in UK house prices in 2013 from 2% to 6%. This is an enormous swing in momentum and the problem is that such a powerful move by investment markets is not always easy to rein in. It will be interesting to see how the Bank of England responds after this week’s regular meeting and whether indeed we are on the verge of a shock increase in UK base rates.