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What 2014 has in store for house prices
2013 is as good as over. House prices are up 7.5%, according to Nationwide, which is the favoured benchmark for many forecasters, although they typically fall back a little in December due to slow sales.
Let's see how accurate forecasters have been this year, and what they think will happen next year.
Capital Economics
Year | Forecast | Actual | Difference |
2013* | -5% | +7.5% | 12.5% |
2012 | -5% | -1.0% | 4% |
2011 | -5% | +1.0% | 6% |
2010 | -10% | +0.1% | 10.1% |
2009 | -20% | +5.9% | 25.9% |
2008 | -3% | -15.9% | 12.9% |
*Beginning of January to end of November 2013
This outspoken economic research consultancy has been wrong by an average 12 percentage points per year going back to 2008, and by the Nationwide measure at least, has usually even got the wrong direction.
Capital Economics' longer-term forecasts have not been accurate either.
Capital Economics, like many forecasters, makes frequent 'updated' forecasts, which is one of those phrases forecasters use to avoid saying it previously got it wrong. Usually, these updated forecasts are still considerably off track, sometimes even when there is just half a year remaining.
For once though, Capital Economics reckons 2014 will see house price growth – 5% to be precise.
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Ernst & Young ITEM Club
Year | Forecast | Actual | Difference |
2013* | +4.4% | +7.5% | 3.1% |
2012 | -5% | -1.0% | 4% |
2011 | -5%** | -1.9% | 3.1% |
2010 | -5% | +0.1% | 5.1% |
2009 | -10% | +5.9% | 15.9% |
2008 | Stall | -15.9% | 15.9% |
**This is “-5% from recent peaks”. The actual has been adjusted to the same timeframe.
Unfortunately, for its 2008 prediction, this group of economic analysts didn't just say “stall” but also that: “it is unlikely that there will be a major housing recession”.
Just when you probably needed it most – during and after the crash – the ITEM Club was hideously wrong.
It believes house prices will grow 6.6% over the next 12 months.
Hometrack
Year | Forecast | Actual | Difference |
2013* | -1% | +7.5% | 8.5% |
2012 | -3% | -1.0% | 2% |
2011 | -2% | +1.0% | 3% |
2010 | -1% | +0.1% | 1.1% |
2009 | -12% | +5.9% | 17.9% |
2008 | +1% | -15.9% | 16.9% |
The residential property analysts who boast they deliver “accurate insights” have got the direction wrong in most years and they have been wrong by eight percentage points on average.
Hometrack analysts expect prices to keep rising in the short term, though they won't put a figure on it
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IHS Global Insight
Year | Forecast | Actual | Difference |
2013* | Stabilise | +7.5% | 7.5% |
2012 | -5% | -1.0% | 4% |
2011 | -10% | +1.0% | 11% |
2010 | Falls | +0.1% | -- |
2009 | Falls | +5.9% | >5.9% |
2008 | Risk of slowdown | -15.9% | >15.9% |
The business consultancy tries to avoid stating precise numbers based on a calendar year, which is actually sensible.
For 2013, IHS said that “house prices will stabilise” and there'll be no big turnaround. For 2010, it said prices were to fall back. For 2009, the consultancy said that the falling trend will not reverse. For 2008, it only warned that there were risks of a “sharp slowdown” in price growth, but never suggested sharp falls.
In all cases they were wrong, based on the Nationwide measure.
John Charcol
Year | Forecast | Actual | Difference |
2013 | Unknown | +7.5% | -- |
2012 | -4% | -1.0% | 3% |
2011 | +/-2% | +1.0% | -- |
2010 | +4% | +0.1% | 3.9% |
2009 | Roughly level | +5.9% | 5.9% |
2008 | -2% | -15.9% | 13.9% |
The mortgage broker's 2008 forecast was for a fall of 5% followed by a swift recovery to just -2%, but at least it got the annual direction right, which is better than most for that year.
The 2009 forecast was for a 4% fall and then a similar recovery before the end of the year. Although prices actually rose nearly 6%, John Charcol was one of the lucky few not to forecast large falls for that year.
John Charcol's media spokesperson, Ray Boulger, has at least partially based his 2014 forecast on the trend for the previous six months: “For the last six months prices have increased every month and the property market tends to feed on its own momentum, whether it is rising or falling.”
However, I have looked back at decades of historical data to see if a one-month, three-month, six-month or even 12-month trend is a reliable way to forecast the next year's move and the answer is a very clear and resounding no. You might find it astounding that someone like Boulger, who has been forecasting for so long, doesn't know that yet, but this error is actually extraordinarily common among widely-quoted forecasters.
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Are there any reliable forecasters?
Personally I don't understand how any businesses can buy professional services from companies that delude themselves and everyone else to the extent that the above forecasters do.
I have built a large database of forecasters with hundreds of forecasts, but I didn't select carefully for this article to create an unfair and extreme impression. Not one single forecaster in my entire database has proven to be reliable, regardless of the house price index you use for comparison.
Get real
Most forecasters talk a good, convincing game, and seem to draw on lots of historical data and logical suppositions to support their guesses. Yet they're still terrible at it.
We need to learn that previous experiences aren't worth a penny when looking to the next year or three, and logical arguments are normally useless in such a mind-bendingly complicated system such as the economy and house prices.
We homeowners, potential homeowners and homesellers now have more than enough information to understand that we have got to stop paying attention to annual forecasts, which are clearly beyond our abilities.
Please don't listen to mindless pundits who say we've still got to try to guess anyway; instead, look for rational ways to decide when to buy, sell and hold property.
This could partly involve, for example, comparing the long-term rental return on the desired property (as if you were buying to let instead of buying) to the mortgage costs. And affordability is a vital consideration.
