UK House Prices Continue 2010 Debt Fuelled Election Bounce

By: Nadeem_Walayat

This UK house price trend analysis represents the next in a series of analysis as part of my unfolding inflationary mega-trend scenario towards the formulation of 2010 forecasts for inflation, interest rates and economy. I aim to complete the whole scenario and implications of before the end of December which will be published as an ebook that I will make available for FREE. Ensure you are subscribed to my always free newsletter to get the latest analysis in your email box and check my most recent analysis on the probable inflation mega-trend at http://www.walayatstreet.com

The UK housing market bottomed in March / April 2008 which was recognised in the May analysis and has since continued the debt fuelled bounce as a consequence of money printing and zero interest rates as the Labour government has succeeded in inflation the UK economy out of recession in time for an early 2010 General Election.

As is the case with virtually all market junctures, back in March if this year the Telegraph and other mainstream media ran with a scare story that UK house prices could crash by a FURTHER 55%, this was after UK house prices had already fallen by 22% and whilst house prices had yet to bottom the Telegraph story at the time seemed to be a completely ridiculous scare mongering purely for the purpose of sensational headline grabbing rather than presenting something that their readership could utilise to their advantage.

12th March 2009 - Telegraph Runs with Improbable UK House Price Crash Forecast of Another 55%

The mainstream press as illustrated by The Telegraph has run with a house price forecast by Numis Securities (NS) that states that UK house prices could fall by a further whopping 55%, that is a rather incredible forecast to make in light of the of 22% fall to date. NS states that a buy to let investor panic will trigger an avalanche of further selling. I am not aware of Numis Securities past forecasts, however analysis of the perma-bear Capital Economics that has consistently been cropping up with bearish house price forecasts since at least 2002 in the mainstream media illustrated the propensity to reprint press releases with-out checking the facts as to whether the forecast is actually probable or not.

The Telegraph wrote: House prices 'could fall by further 55 per cent

"People who bought buy-to-let flats are expected to “begin panic selling” and the average home value could drop below £100,000."

“Despite UK house prices already having fallen 21% from the peak, we do not believe that the correction is anywhere near over.

“Our core headline forecast is that UK property prices remain between 17% and 39% overvalued based on fair valuation. Moreover, history has shown us that when property…which has experienced a price bubble corrects, the price tends to fall below fair value for a period of time, as confidence in that market remains low. Prices could fall a further 40-55% if the over-correction was as bad as the early 1990s in our view.”

Subsequently, UK house prices bottomed in April / May 2009 and have embarked upon a debt fuelled bounce into a May 2010 General Election that has already seen UK house prices RISE by more than 5% from the April / May low rather than to CRASH toward another 55% drop.

Whilst many are focused on the headline unemployment data, however back in August 2009 in the analysis (UK House Prices Tracking Claimant Count Rather than Unemployment Numbers), the conclusion was that the focus should remain on claimant count rather then the headline unemployment rate, in this regard the claimant count is turning positive in the most recent data and is therefore supportive of a continuation of the trend higher in UK house prices.

The above chart indicates that there does exist a strong relationship between house price trends and the unemployment benefit claimant count, more so than the unemployment data. The possible reason for this is that those made unemployed that do not claim benefits are not in as financially distressed state than those that have no choice but to claim benefits, therefore house prices can and have risen in the past whilst the official rate of unemployment rose, if at the same time the claimant count did not rise.

The recent bounce in house prices is tracking quite closely with the stabilisation of the unemployment claimant count numbers, which therefore suggests that as long as those claiming unemployment benefits continues to stabilise at the current level of 1.6 million then the outlook remains positive for UK house prices to continue drifting higher, this is despite official unemployment data that looks set to continue to rise towards 3 million from 2.43 million.

My on going research suggests that the debt fuelled economic recovery is expected to continue into mid 2010 that could see house prices up by as much as 10% year on year and therefore contrary to the widespread view of flat house prices during 2010, however this warrants in depth analysis to formulate a higher probability forecast which I aim to complete during January 2010.

In conclusion the trend of inflating UK house prices into mid 2010 is supportive of the trend of inflating general prices that will play catch up during early 2010 and continue upward into the second half of 2010 due to increased consumer spending as a consequence of some of the return of the feel good factor amongst consumers.

UK Inflation Forecast 2009

Deflationary forces as a consequence of the the bursting of the asset bubbles has fulfilled the deflation forecast for 2009 as per the original analysis of December 2008 - UK CPI Inflation, RPI Deflation Forecast 2009 that forecast Deflation into Mid 2009 targeting RPI of -1.2% and CPI of +0.9% to be followed by an uptrend into year end back into RPI inflation of +0.9% and CPI of +1.6% as illustrated by the below graph.

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Source: http://www.marketoracle.co.uk/Article16078.html

By Nadeem Walayat
http://www.marketoracle.co.uk

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Nadeem Walayat has over 20 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis specialises on the housing market and interest rates. Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication. We present in-depth analysis from over 500 experienced analysts on a range of views of the probable direction of the financial markets. Thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

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