House Prices in 2010 - Up or Down?

Here's the big question. What are house prices going to do in 2010? After all, all the pundits got it wrong in 2009!

Let's start by reviewing what happened last year. According to Nationwide, prices nationally ended up with a 5.9% rise over 2009. This left them 8.9% above the February low, but about 12% below peak pricing in 2007. Hardly a property crash in retrospect!

House Prices for 2010

So who got this right? Nobody that I can find. 2009 predictions varied from Hamptons at -5% to Capital Economics (always negative) at -20%. Most commentators expected at least a 10% fall.

The commentators were, on average, out by 15% in their predictions. In house price terms this is an enormous amount.

What about 2010? The predictions range from +5% (Assetz) to -10% (our friends at Capital Economics again), with an average prediction of zero change. Now is this also likely to be about 15% out, or is it more realistic?

My view is that 2009 was a particularly difficult year to predict. House prices through 2008 were really in free fall, the Government was taking unprecedented action which no one was sure would work and the banks were in a huge mess. Pessimistic forecasting was a safe play.

Forecasting in 2010 is more certain

2010 is different. We know more where we are. We can see the impact of the Government initiatives and we have a more solid base within the banks. My view is that the outlook is not quite so uncertain, although the economy and the recession could still cause a wobbly.

The reduction of stamp duty back to £125,000 from the temporary lift to £175,000 will not help prices rise, at least with lower priced property.

There is a tradition in property that London and the South East are the first to lead the property cycle downwards, and the first to move upwards. The concensus, with which I agree, is that these areas will outperform the rest of the country not just this year but into 2011. With a weak pound the overseas buyers will continue to come, and this also favours prime London property.

My view - given the continued lack of homebuilding and the scarcity of new homes, combined with the reluctance of many owner-occupiers to sell at low prices - is that prices will be positive in 2010, although not by much except in London and the South East.

What does this mean for property investors?

Guessing at future house prices is fun, but the only thing that matters is what the impact is on property investors! Here's what I think...

The right deals continue to offer excellent rental yields which can be locked in by buying at the right price.

There is an overhang of distressed and repossessed property which is still available at cheap prices, but as it reduces the discounts will be less certain and more modest.

The continuing uncertainty in the market will, for 2010, continue to throw up opportunities for investors as people who need to sell will not be able to wait until the market rises.

BTL Mortgages are not likely to provide easier terms, we still see the 65%-75% area as maximum LTV's, but it's possible that rates may fall a little if competition increases as the money supply eases.

Cash will continue to be king. Low and No Money Down deals continue to be difficult to engineer and investors who can put down 25% to 35% deposits will end up with superb positive cash flow investments, very low risk and the pick of the deals. If you can raise cash by reallocating assets or borrowing against other assets, now is the time to do so.

2010 will be the best time to invest in property for a generation!

Bottom line - 2010 will be an excellent year for buying bargain investment property, but the window of opportunity for buying at the bottom of the cycle is now closing. By the end of 2010 we anticipate discounts to be reducing, prices to be hardening and rental yields to be falling back.

On the other hand, if you invest now, you will be buying bargain properties at the lowest price for many years, and in the process making the best investments you could for a generation. Time to get serious and sort out your investment plans!

Profitable investing,

Rod Thomas

Posted in Property Prices