2007 Predictions?

Stock market to go 10% higher to around 6900 - house prices to start levelling off by year end although as with all things there will be hotspots where this will not apply.

Hmmm.

The house price crash will happen at some point, but I can't promise it will be next year.

Stock market looks reasonably valued. There are some factors which will cause it to rise, others will cause it to fall, so I'm not sure quite which way it will go.

The consumer debt crisis is likely to get worse. Quite how much worse, I don't know, and I don't know if it will be enough worse to have a knock on effect on the rest of the economy.

What will be, will be.

My prediction is that the experts will do no better than a random selection and that the HPC 'experts' will be out in force again........though they've all been rather quiet recently havent they? Remember this time last year when it seemed every other post was predicting the imminent demise of the UK housing market? SInce they havent been posting recently, maybe a HPC is coming? :-)

LOL. In that vein, I confidently predict that there will be some storms, though I'm not sure where or when, and the dollar will rise against the pound (not saying when though), plus something else will happen somewhere. Is that good enough BGB? :-)

Funny you should mention "random". On Money Box they got a random number between 5000 and 7000 for what the FTSE 100 would be at, as the panel didn't agree on anything close. The number the computer gave was

5200, I think...

Can't be arsed

Don't know what's going to happen to house prices (I've been thinking they were just about to crash for years, but I've now realised that I really don't have a clue), but my prediction is that the stock market will crash horribly and go down to somewhere around the 4000 mark.

Round about the time that we invade Iran.

Adam

I knew you'd say that.

Are you sure? It seems likely that there will be (for want of a better word) a "correction", but who's to say it will be in the form of a crash rather than a more gradual move, and where would you draw the line, i.e. how suddenly would prices need to move for the movement to qualify for "crash" status?

Crisis? What crisis? Seriously. There is only a debt crisis once it becomes clear that consumers on the whole have (or are committed to taking on) more debt than they can possibly ever repay. We're nowhere near that point, are we?

Thats more like the old Tumbleweed!

I wonder if changes in planning law could cause a house price crash?

As I understand it, it is currently quite difficult to get planning permission to build new houses, hence land with planning permission is very expensive, which obviously makes houses very expensive. By contrast, agricultural land is relatively cheap. If panning laws were changed to make it easier to build new houses then house prices could drop dramatically.

However, I doubt the above will happen as soon as 2007, if at all.

I don't think we are anywhere near that point. However the number of people becoming insolvent this year has passed some nice round number for the first time, and the media seem to like nice round numbers:

approx 110,000 people became insolvent, that's about 0.18% of the population.

1.4 billion in bad debt written off, that's about £23.33 each if spread over the whole population of 60 million.

I fail to see why it should be spread over the whole population

It one doesn't buy a product why should they contribute to the cost of that product attributable to defaulters?

tim

I'm not saying it should. I was trying to put the headline figure of 1.4 billion in perspective.

I'm no expert here, but my guess would be that a gradual correction could very easily turn into a crash simply because of the psychology of it all. If prices start to fall, sellers may start to panic and take lower offers than they think they should, for fear that prices will fall still further. Similarly, once buyers begin to sniff a falling market they may hold back to see how much further prices fall, thus reducing demand and contributing to further falls.

Of course, that extremely simplistic analysis ignores the fact that a lot of people are both buyers and sellers at the same time and probably a lot of other things as well, but could there be something in my theory? Did anything like that happen last time there was a house price crash?

Adam

I don't think there are any true experts in foreseeing the future but what you say is certainly plausible. My feeling is that house prices have been stupid for so long that that is the way it'll stay. Britain will turn into a nation of landlords/tenants as I believe some countries in mainland Europe are (Italy springs to mind), though someone might want to correct me on that.

The last crash in the early 90s was due to Britain's position in the Exchange Rate Mechanism which meant that the pound was allied to the Deutsch-mark and we had to raise interest rates to 15%. Different ball game now but I think interest rates will go up in 2007, if only because adults these days weren't taught how to budget properly at school, which is why UK is drowning in debt.

Another factor now is the Internet. These days, it's much easier for banks, building societies, etc. to talk up the market.

Ed.

I think a crash is only really likely if a lot of people are forced to sell. At the moment that seems unlikely. Last time a big factor was the poor employment market that either meant people couldn't get a new job at all or were forced to relocate - and for the people who were forced to relocate the very high interest rates meant that it was often difficult to do anything other than accept the first offer that came along due to not enough disposable income to rent temporarily in the new location. (Of course, they also benefitted from lower prices when they bought but were sometimes limited in choice so it may have felt like a downward step even if it was only a side step financially)

The employment market looks pretty stable at the moment so the most likely trigger I can see for a housing crash is if interest rates go up to the point where people can no longer afford to pay their mortgages. While it's possible, maybe even probable, that they will go up a little more, to the point where mortgage payments hurt, it seems unlikely that interest rates will go high enough to trigger a flood of repossessions and that will only start in the latter part 2007 even if IR go up at the start of 2007.

Increasing IR might cause the employment problems as less disposable income leads to less purchasing of goods leads to company layoffs to cut costs but, in theory at least, the whole point of IR raises are to slow the economy, not bring it crashing down.

There are some people now who are in the "buy to hold" market (especially in London) - i.e. they are buying property with no intention of letting it out at all, just cashing in on the property price increases. If house price increases drop much below about 5% then many of these are going to want to move their money into better performing investments or let out their properties.

With careful management of the economy it ought to be possible to squeeze out a lot of these speculators without destroying the "home" market for property.

So my prediction for 2007 housing market is that we will see a soft landing with prices rising around 2-5% on average. London in particular is hard to call, the flood of huge bonuses may cause a spike in the first six months of the year - that could easily cause an overshoot and price drop in the second half of the year or it could just result in a much more stagnant market in H2 2007

Tim.

The real reason behind the crash circa 1990 was the withdrawal in the Budget of the rule which allowed multiple mortgage applicants to get the full MIRAS tax relief for each applicant. This was not changed immediately but announced that it would end in August, and predictably this led to a rush to take advantage of the rule, which drove property prices to unrealistic levels. The following fall in prices was equally predictable.