110: Which way the UK market - and why?
Very interesting times for house prices in the
The news about city bonuses and a “wall of money” – some £8 billion hitting the property market has helped fuel steep house price rises towards the end of 2006 in the expectation of continued rises in 2007 when this money is banked – mostly between end January and early April.
Many economists are now expecting rates could rise to 5.5% in early February because there are signs of high money supply levels, increasing wage settlements and retailers ramping up prices - and this would feed through causing inflation. The effects of higher oil and gas prices in early 2006 will feed out of the annual inflation figure which should help to moderate inflation, but there is a feeling and genuine concern that the buoyant economy is leading to increased spending patterns and retailers taking advantage of customers willingness to accept higher prices by raising their prices. The good news is, oil prices have dropped from $78/bbl to $50/bbl and wholesale gas prices from 80p/therm to 28p/therm – but it's almost as though this has fuelled growth, activity and hence inflationary pressures on this occasion.
There is also some evidence that
So what does this mean for the property investing community?
- Do not be surprised to see interest rates rise to 5.5% in February and possibly higher still by mid summer – make sure you budget for such increases in your cashflow projections.
- Do not be surprised if house price growth drops to zero in the Midlands, North and West by Q2 2007 and moderates to say 2-5% in London and the South-East if inflation takes off in the next few months – we should see if this is the case by end February.
- If prices fall, make sure you have enough cash in the bank to see you through any stormy period – and those with a lot of free cash and good positive cashflow would likely be able to pick up some real bargains if distressed sellers appear in the market.
It’s important though to note that, because the property market is such an important part of the overall
So - keep monitoring the news, state of the market and which direct inflation goes, because it should be critical to your investment strategy - to "avoid" buying at the peak of the market and selling at the low of the market.