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456: 2013 Prediction (and 2012 look-back)


12-29-2012

PropertyInvesting.net team

 

 

 

More objective guidance and insights for property investors. Our aim is to help you improve your investment returns, flag key risk areas and stimulate strategic thought so you can position your portfolio to maximize gains, for the thousands of daily visitors to the website and the thousands of people signed up to your Newsletter. This Special Report describes our 2013 Predictions and takes a Look-back Review of our 2012 Predictions for good order (to be added below by end Dec).

We start with our view on 2013 property prices in the UK followed by economic criteria. We’ve been performing this analysis for the last eight years now. All our previous predictions can be reviewed on the website in our Special Reports section, so you can judge for yourself how accurate we have been.

 

 

409: 2012 Prediction (and 2011 look-back)

356: 2011 Prediction (and 2010 look-back)

301 2010 Prediction (and 2009 look-back)

245 2009 Prediction (and 2008 look-back)

179 2008 House Price Predictions – Global

102 Property Price and Economic Predictions for 2007

55 Predictions for 2006

20 Predictions for 2005

 

For 2013, there will be a number of criteria that will pull property prices one way or the other, which we outline below:

 

Positive Criteria for Property Prices in 2012

·         It’s possible more competitive and abundant mortgages may become available albeit its possible interest rates may rise

·         Effects of higher VAT, national insurance, petrol duty and tax on bonuses almost disappear

·         Lack of house building

·         Strong rental market

·         London likely to continue to boom with expanding population

·         Increasing UK population

·         Pent up demand from three years of low market activity – please needing to move

·         Further flood of wealthy Europeans escaping austerity measures and punitive tax rises head for central London

·         Crossrail building in London

·         Slight reduction in unemployment through first half of year

·         Early phase of High Speed 2 rail link to Birmingham

 

Negative Criteria for Property Prices in 2012

 

·         Potential bond market collapse

·         Reasonable likelihood of interest rates rising

·         If currency declines, rising inflation feeding through to higher and interest rates

·         Higher oil prices and energy prices - feeding through to inflation and higher interest rates

·         Public sector jobs losses continuing through 2012 – albeit wages continue to rise faster than private sector wages

·         High levels of deposits required

·         Difficulty getting mortgage for average person

·         Low lending to salary multiples

·         High energy costs (oil, gas) depress remote areas well away from London

 

Overall, we believe the positive factor more or less cancel out the negative factors and prices will remain fairly subdued and fluctuating around current levels through 2011 on an overall UK national level. However, we predict like in 2012 property prices in the more wealthy southern and London (west London in particular) areas will be stronger than in northern areas that are more exposed to public sector and manufacturing sector jobs losses and spending cuts.

 

Property Price Predictions

 

1. London +4% (West London +5%)

2. SE England +3%

3. East Anglia +2%

4. Scotland +2%

5. SW England +1%

6. NW England -1%

7. Midlands -1%

8. Wales -3%

9. NE England -2%

10. Northern Ireland -5%

 

Note: Because publish inflation will be ~2.5% (though real inflation will be more like 5%), real terms property prices decline in all regions except London – however, mortgage debt levels drop in real terms.

Other criteria

§  US Dollar to the UK£ $1.42 / £1 – dollar declining

§  UK £ to the Euro £1 / 1.1 Euro – Euro strengthening

§  Oil price $105/bbl early 2013 rising to $115 by year end

§  UK Gas price 52p/therm

§  UK Interest Rates – staying at 0.5% through 2012

§  FT dropping from 5950 to 5650 by end 2013

§  UK Inflation CPI staying at 2.5% through 2013

§  UK GDP staying between -1% and 1% fluctuating through 2012 (on quarterly annualized basis)

§  Security outlook – Iran and Syria will be hotspots in 2013

§  Euro interest rate – staying at 1.25% through 2012

§  US Interest rates staying at or close to 0.5% through 2012

§  UK unemployment – slightly reducing through 2012

§  Wage inflation – ~3% through 2012 in public sector and 2.5% in private sector

§  GDP growth London 2%, North -0.5%, Midland 0.2%, Scotland 1%. Wales -2%

§  GDP China 7%, GDP India 7%, GDP Africa 3%, Global GDP 2.5%, UK 0.3%, USA 0%, Euroland 2% - as a whole over 2012

§  Gold rising from $1650 to $1950 by end 2013, silver rising from $30 to $40

Iran developing nuclear weapons capability continue to be a key issue – lack of global leadership not helping resolve. As prices for food and fuel escalate and oil export reviews drop in Egypt, Syria, Yemen and Iran, more turbulence breaks out. Continued concerns of a blockade in the Straits of Hormuz – potential next oil crisis.

USA debt situation deteriorates still further and QE3 accelerates leading to QE4 or equivalent. Dollar starts steady decline as fiscal problems worsen. Bond market collapse possible – triggered by recession and political intransience. Interest rates could rise sharply at any time in 2013 – 50% chance of this happening.

Inflation situation will worsen dramatically only if there is a bond and/or currency collapse in USA and/or UK.  New supplies of high cost oil and low cost gas in USA continues to help keep a lid on oil and gas prices – albeit always at the mercy of Iran security issues. Peak cheap oil was 2002 – and although all oil liquids production continues to climb, the lifting costs of new oil is $70/bbl (instead of $8/bbl in 1999).   

Greece, Portugal, Ireland, Spain and Italy – austerity measures continue and situation starts to improve early 2013. Euro bond markets stablize. Monti is elected Italian premier end Feb 2013. Although some riots continue, by end 2013, European PIGS countries see their situations start to improve. Sharp stock market rebound early 2013 in PIGS countries. Attention rapidly switches to dire state of US debt situation. Markel claims credits by end 2013. Euro currency survives. European model of austerity proven to work, whilst US model in tatters by end 2013.    .

As oil prices fluctuating – new US and Iraqi supplies offset declines in OPEC countries. Wildcard is Straits of Homez blockade or US-Iran war. China continues to grow strongly at GDP 7% just about controlling the real estate bubble. Brazil and India also boom with GDP at 6% and 7% respectively.

Switch Euro to US Wows: Attention will rapidly switch from Euro wows the grave US debt situation. As the USA sinks into recession, the stock market will drop, triggering more money printing – but this time, the US safe haven status will desert the country leading to a bond market collapse or steep decline. As the US currency declines, US inflation will rise. This will further increase unemployment. Overall – it’s likely to be a bad year for the USA and far better year for Europe. Japan might also suffer problems with its bond market and the Yen will decline.   

Note: Just like last year’s prediction, sometime in the next 6 months to 5 years we expect a real economic-financial crisis in western developed nations caused by the US bond market meltdown. At this time, gold and silver prices will go ballistic (silver from $26/oz to $400/oz and gold from $1550/oz to about $6400/oz. The Dow Jones will be range bound – but will continue its steady decline in inflation adjusted terms. At some time in the future the Dow should equal the gold prices.

 

Look-Back on 2012 Predictions 

 

below is the look-back on our 2012 predictions for good order - with our comments in bold italics.

 

There were predicted end Dec 2011 be a number of criteria that will pull property prices one way or the other, which we outline below:

 

Positive Criteria for Property Prices in 2012

·         More competitive and abundant mortgages - though only slightly increasing  Yes

·         Effects of higher VAT, national insurance, petrol duty and tax on bonuses start to disappear – generally correct

·         Increase in private sector bonuses – stayed the same (did not rise)

·         Lack of house building – accurate, all time low building rates in last 70 years

·         Increasing population - accurate

·         Pent up demand from three years of low market activity – please needing to move accurate

·         Middle class British people/expats move back home due to economic hardship overseas – meanwhile immigration increases further – net immigration increases even further accurate

·         2012 Olympics London affect - accurate

·         Crossrail building in London – affects starting – difficult to identify

 

Negative Criteria for Property Prices in 2012

·         Increased unemployment through 2012  - unemployment stays broadly the same

·         Increasing inflation feeding through to higher costs – in H2 2012 this was the case, but inflation subsided in H2 2012

·         Higher oil prices and energy prices - feeding through to inflation and higher interest rates – yes in H2, but prices dropped back by end 2012

·         Public sector jobs losses continuing through 2012 and lower or freezes on public sector wages – public sector wages rose faster than private sector - wrong

·         High levels of deposit required – yes, correct, 20% for first time buyers

·         Low lending to salary multiples - yes

·         Heat oil, petrol, diesel adversely affects rural areas and house prices in remoter parts – yes, high energy prices causing recession in rural areas

 

Overall, we believe the positive factor more or less cancel out the negative factors and prices will remain fairly subdued and fluctuating around current levels through 2011 on an overall UK national level. However, we predict property prices in the more wealthy southern and London (west London in particular) areas will be stronger than in northern areas that are more exposed to public sector and manufacturing sector jobs losses and spending cuts.  Accurate

 

 

Property Price Predictions

 

1. London +5% (West London +7%)   close to spot on

2. SE England +2%  close to spot on

3. East Anglia +1%  close to spot on

4. Scotland +2.5%  close to spot on

5. SW England +1%  close to spot on

6. NW England -2%  close to spot on

7. Midlands -2%  close to spot on

8. Wales -3%  close to spot on

9. NE England -3% close to spot on

10. Northern Ireland -5%  close to spot on

 

Note: Because inflation is at ~4.5%, real terms property prices decline in all regions except London – however, mortgage debt levels drop in real terms.

Other criteria

·         US Dollar to the UK£ $1.54 / £1 – broadly similar through year - was $1.62 / £1. Pound was stronger than predicted

·         UK £ to the Euro £1 / 1.1 Euro  Was £1 / 1.22 Euro – pound was stronger

·         Oil price $105/bbl early 2012 rising to $140 by June 2012 then dropping back to $120 by year end – accurate in H1 but stayed at that level in H2 2012

·         UK Gas price 48p/therm – accurate, closed at 52p

·         UK Interest Rates – staying at 0.5% through 2012 – accurate, same

·         FT rising from 5300 to 5600 by end April then dropping back starting early May to 5000 by end 2012 – wrong, FT closed at ~5950

·         UK Inflation CPI rising from 4.2% to 5.8% by end 2012 – upward momentum – wrong, inflation was claimed to be ~2.5% (though real inflation is more like 5%)

·         UK GDP staying between 0% and 1% through 2012 (on quarterly annualized basis) - accurate

·         Security outlook – Iran and North Korea key hot-spots. Continued turmoil in Syria and continued sectarianism in Iraq – worsening – Iran was hotspot, North Korea less so (Syria was worse than expected)

·         Euro interest rate – staying at 1.5% through 2012 - yes

·         US Interest rates staying at or close to 0.5% through 2012 - yes

·         UK unemployment – rising slightly through 2012 – was flat

·         Wage inflation – staying at ~3.2% through 2012 in both private and public sectors – reasonably accurate, was a little lower at ~2.5%

·         GDP growth London 2%, North -0.5%, Midland 0.5%, Scotland 1%. Wales -1% - very accurate

·         GDP China 8%, GDP India 6%, GDP Africa 3%, Global GDP 2.5%, UK 0.5%, USA 1%, Euroland 1% - as a whole over 2012 – very accurate

·         Gold rising from $1525 to $2000, silver rising from $26 to $45 – precious metals did rise, but gold closed at $1650/ounce and silver $30/ounce

·         Obama re-elected President by end 2012 with very small margin – correctly predicted

Iran and North Korea developing nuclear weapons capability continue to be key issues – lack of global leadership not helping resolve. Terrorism threats increases along with inflation and oil prices as economic disparity increases between population groups in Middle East. Security situation Middle East deteriorates with frequent disruptions and fears over oil supplies. Possible war between Israel and Iran (possibly also involving Syria, Egypt and/or Turkey). Focus on Straits of Hormuz – potential next oil crisis due possible blockade by Iran.   Generally correct.

USA debt situation deteriorates still further and QE3 accelerates in lead up to elections. Dollar declines as the Obama administration continues to print money devalues the currency and causes bond rates to rise sharply.  Accurate.

Inflation situation deteriorates by end 2012 – UK official RPI inflation figures rise above 5.5% with little response from central bank. Actual (real) inflation more like 10+%. All commodities prices rise - oil, gas, copper, sugar, wood prices. Oil production continues on a bumpy Peak Oil plateau – oil shortages worsen. Over-estimated inflation.

Greece, Portugal, Ireland, Spain and Italy continue economic crisis as stagflation is exacerbated by high oil prices (oil import costs). Further Euro debt contagion and bail-outs for Italy, Portugal, Greece and Spain as oil prices rise >$115/bbl. These countries need to leave the Euro to devalue their currencies and regain competitiveness – uncertain whether this happens in 2012 or not. France and Germany continue to drive the European economies through manufacturing and commerce expertise – peripheral Euro-zone countries suffer as the Euro stays strong. Norway and Sweden will continue to excel. Norway with its huge budget surplus, high performing sovereign wealth fund and high transparency and environmental standards. Fairly accurate.

As oil prices continue to rise, Dubai/UAE and Middle Eastern economies continue to grow strongly. China continues it’s boom with GDP 8% though slowing as real estate bubble deflates. Brazil and India also boom with GDP at 7% and 6.5% respectively. Accurate.

General Decline With Election Boost: In general, we should expect more of the same. That is, a slow economic decline – part of an overall collapse in western living standards as the ravages of Peak Oil and over-indebtedness lead to many years of economic decline. Government numbers will be manipulated to give an impression of growth, but inflation, low wage rises and rapidly increasing costs of food and energy will sap more life out of the consumer and make almost everyone feel hard up and financially pressured. It will be like 2011 except a bit worse. Expect more civil disorder, more global riots, higher unemployment, an increase in resources wars and increase in the impact of natural disasters. The growth economies of China and India will also slow somewhat. Because there are so many elections in western developed nations in 2012 (e.g. USA, France, Greece, Italy), expect massive money printing and further stimulation from low interest rates (negative real rates) – that store problems up for 2013, when a more general collapse will likely occur. Hence stock markets are likely to rise through to June 2012, before heading south as a broadening of the western economic breaks out by early 2013. Any big military conflict could see gold reclaim its rightful status as safe heaven away from the dollar - this should be in terminal decline by now.  Accurate.

Note: Sometime in the next 6 month to 6 years we expect a real economic-financial crisis in western developed nations caused by the US bond market meltdown. At this time, gold and silver prices will go ballistic (silver from $26/oz to $400/oz and gold from $1550/oz to about $6400/oz. The Dow Jones will be range bound – but will continue its steady decline in inflation adjusted terms. At some time in the future the Dow should equal the gold prices.  Still holding to this prediction moving forwards.

  

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