House prices are defying gravity and living on ‘borrowed time’.
The claim comes from Telegraph writer John Ficenec, who in this morning’s paper says that house prices have broken free from gravity and that there are “six clear reasons [why] a nasty correction looms in the coming year”.
He cites quantitative easing as the great “money printing experiment in history”, saying that while much of that money flowed into the stock market, a great deal also found its way into house prices.
Ficenec says: “What we are now witnessing on trading screens around the world is the unwinding of the era of monetary excess, and house prices will not escape the fall-out.”
He says that share prices are already falling, but that there is a delayed effect on property prices because the market is so inefficient.
He says: “Transactions can take up to three months to complete and the property itself may have to languish on the market for even longer.
“The prices are also dictated by estate agents, who have an interest in inflating them to raise fees.
“The number of transactions is also still about 40% below that of 2006 and 2007, which allows prices to stray from the fundamentals for a longer period.
“It is true that Britain is suffering from a housing shortage, which drove UK house prices to a record high of an average of £208,286 in December, but like all asset prices they are on borrowed time.
“The fundamentals of demand and supply in UK housing will undergo a huge shift in the year ahead.”
Ficenec also discusses what he calls the death of buy-to-let, with predictions that 200,000 landlords plan to exit the sector after George Osborne’s tax raids.
Another Telegraph writer, Olivia Rudgard, yesterday also warned that landlords investing in 90% of the UK and who purchase with a mortgage will be losing money within five years.
The calculations, to do with the ability of landlords to deduct mortgage costs from rental income, use data from LSL firms Your Move and Reeds Rains.
Ficenec’s article is here
Rudgard’s article is here