Whither house prices?

Friday, 06 June 2008 10:06
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Tidy Street, North Laine, Brighton

I received a questionaire yesterday from a Brighton estate agent asking what I expected would happen to house prices in the next year.

I do not have a crystal ball but if there was no expection of inflation I would say that prices are 20% too high. The house two doors away from me in a street like the one in the picture is let for £1500 a month which is about £15,000 a year net. Others in the street, which is near the main line station, with frequent trains to London taking under an hour for the journey, are on sale at about £380,000 which is about £10,000 less than what they were at the peak 12 months ago. But there have been no takers yet.

My hunch - it is no more than that - is that inflation will run to 4% in the next 12 months and 7% in the 12 months after that. It might have been higher but the Monetary Policy Committee seems to be able and willing to resist calls to reduce interest rates.

If you work out how much you would need to leave in an account to get that amount in interest, and add on a bit for the expectation of future growth and allow for inflation, the right figure for a house such as those in the picture figure is in the region of £340,000. I think that is where the prices will settle in due course - a drop of just over 10% in money terms. But trading will be at reduced levels while present uncertainties and lack of confidence continue. There is a lot of fear around.

I would also expect the rental market to be fairly stable or possibly buoyant and rentals to rise roughly with inflation, in accordance with the normal pattern.
 

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