496: 2014 Predictions (and 2013 look-back)
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 2014 Predictions and takes a Look-back Review of our 2013 Predictions for good order.
We start with our view on 2013 property prices in the UK followed by economic criteria. Weve 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.
356: 2011 Prediction (and 2010 look-back)
For 2014, 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 2014
· Its 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 2014
· 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 2013 property prices in the more wealthy southern and London (west London in particular) areas, property prices 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 +8% (West London +7%)
2. SE England +5%
3. East Anglia +3.5%
4. Scotland +1.5%
5. SW England +2.5%
6. NW England +2.0%
7. Midlands +3%
8. Wales +1.5%
9. NE England +0%
10. Northern Ireland -2%
Note: Because published inflation will be ~2% (though real inflation will be more like 4%), real terms property prices will still decline in some rural like Northern Ireland and NE England.
§ US Dollar to the UK $1.52 / £1 Dollar-Sterling track each other
§ UK £ to the Euro £1 / 0.8 Euro Euro-Sterling-Dollar track fairly closely
§ Oil price $100/bbl (range $88 to $105/bbl)
§ UK Gas price 55p/therm
§ UK Interest Rates staying at 0.5% until May 2014 increasing to 1% by end 2014
§ FT dropping dropping from 6600 to 6250 by end 2014
§ UK Inflation CPI staying close to 2.4% through 2014
§ UK GDP staying around 2.3%
§ Security outlook improving (except Iraq and Lebanon/Syria)
§ Euro interest rate staying at 1% through 2014
§ US Interest rates staying at or close to 0.5% through 2014
§ UK unemployment reducing from 7.2% end 2013 to 6.7% end 2014
§ Wage inflation ~3.3% through 2014 in public sector and 3% in private sector
§ GDP growth London 4.5%, North 1%, Midland 1.5%, Scotland 1%. Wales 1%
§ GDP China 6%, GDP India 6%, GDP Africa 2.5%, Global GDP 2.5%, UK 2.3%, USA 2.3%, Euroland 1.5% - as a whole over 2014
§ Gold staying around $1200/ounce with silver rising from $20 to $22/ounce
Syria-Lebanon problems continue after these two countries. Security situation in Egypt improves. Yemen and Iran stay the same no overall crisis.
USA debt situation deteriorates further through some degree of tapering of QE is possible from $75 billion / month to $45 billion / month. Interest rates remain at or close to 0.5%. Bond market look unstable but do not yet collapse.
Inflation situation improves through to May 2014 then worsens somewhat later in the year as general inflation is affected by the housing boom. Oil prices stay range bound between $85/bbl and $110/bbl.
Greece, Portugal, Ireland, Spain and Italy austerity measures continue to improve the finances of these countries and these slowly start to grow once more as the main Euro crisis affects die away.
South China Sea: The new security hotspot will be the South China Sea tensions with Japan and USA in relation to territorial claims.
BRIC: Brazil and India continue to boom with GDP increasing 5% and 6% respectively.
Euro, UK, Japan and US Wows: These countries have succeeded in kicking the can down the road for another year or so. The debt mountain increases and the bond bubble increase along with the housing bubble. It looks more likely the bust will be in 2015 2014 could be more stable than 2013 but beneath the faηade lie deep seated cracks that will likely appear later in 2015.
Note: Just like last years 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 $20/oz to $400/oz and gold from $1200/oz to about $6400/oz. The Dow Jones may rise, but inflation adjusted real terms will decline still in an overal cyclical bear market.
Look-Back on 2013 Predictions
Below is the look-back on our 2013 predictions for good order - with our comments in bold italics.
There were predicted end Dec 2012 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
· Its possible more competitive and abundant mortgages may become available albeit its possible interest rates may rise - Correctly predicted better mortgage availability
· Effects of higher VAT, national insurance, petrol duty and tax on bonuses almost disappear - Accurate
· Lack of house building Yes, became Big News in 2013
· Strong rental market Continued in 2013 - correct
· London likely to continue to boom with expanding population - Correct
· Increasing UK population - Correct
· Pent up demand from three years of low market activity people needing to move Effects seen clearly - Correct
· Further flood of wealthy Europeans escaping austerity measures and punitive tax rises head for central London Correct, particularly the French
· Crossrail building in London Yes, started in earnest
· Slight reduction in unemployment through first half of year Marked reduction, yes
· Early phase of High Speed 2 rail link to Birmingham - Stalled much talk
Negative Criteria for Property Prices in 2012
· Potential bond market collapse - not yet
· Reasonable likelihood of interest rates rising not yet
· If currency declines, rising inflation feeding through to higher and interest rates not yet
· Higher oil prices and energy prices - feeding through to inflation and higher interest rates not yet
· Public sector jobs losses continuing through 2012 albeit wages continue to rise faster than private sector wages yes, continued
· High levels of deposits required alleviated by Help to Buy
· Difficulty getting mortgage for average person alleviated by Help to Buy
· Low lending to salary multiples alleviated by Help to Buy
· High energy costs (oil, gas) depress remote areas well away from London yes, energy prices rocketted
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. Correct
Property Price Predictions
1. London +4% (West London +5%) ended +8%
2. SE England +3% ended +5%
3. East Anglia +2% Correct
4. Scotland +2% close - ended more like +1%
5. SW England +1% Correct
6. NW England -1% Correct
7. Midlands -1% Ended more like +1%
8. Wales -3% Ended more like 0%
9. NE England -2% Yes
10. Northern Ireland -5% Yes
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.
§ 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 Yes, by mid year was $115 but dropped to $105
§ UK Gas price 52p/therm Spot on
§ UK Interest Rates staying at 0.5% through 2012 Yes
§ FT dropping from 5950 to 5650 by end 2013 Rose to 6500 wrong
§ UK Inflation CPI staying at 2.5% through 2013 More or less correct, dropped to 2%
§ UK GDP staying between -1% and 1% fluctuating through 2012 (on quarterly annualized basis) ended +2% more than predicted
§ Security outlook Iran and Syria will be hotspots in 2013 indeed this was the case, though both subsided somewhat by year end
§ Euro interest rate staying at 1.25% through 2012 surprise drop to 1%
§ US Interest rates staying at or close to 0.5% through 2012 - Yes
§ UK unemployment slightly reducing through 2012 - Yes
§ Wage inflation ~3% through 2012 in public sector and 2.5% in private sector - Yes
§ GDP growth London 2%, North -0.5%, Midland 0.2%, Scotland 1%. Wales -2% Close, was slightly higher
§ 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 USA was stronger and Euroland weaker than predicted
§ Gold rising from $1650 to $1950 by end 2013, silver rising from $30 to $40 Gold ended $1200 with silver $20 - wrong
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. Iran issue still evident though a temporary deal signed.
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. USA faired better than expected more stable (possible positive effects of low cost oil and gas from Shale deposits) USA stumbled along possibly supported by Shale oil/gas production-reserves.
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). Not accurate
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. European improvement correct, US deterioration prediction incorrect.
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. GDP growth prediction close though Iraq issue died away at least temporarily by Nov 2013. More or less accurate.
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 its 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. Wrong USA and Japan did better than expected
Note: Just like last years 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. Still applies.