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557: 2016 Predictions (and 2015 look-back)


12-28-2015

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 gain, for our five thousand website visitors a day and the thousands of people signed up to your Newsletter. This Special Report cover one key topic:

 

1. 2016 Predictions (and 2015 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 2016 Predictions and takes a Look-back Review of our 2015 Predictions for good order.

We start with our view on 2016 property prices in the UK followed by economic criteria. We’ve been performing this analysis for the last nine 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.

 

553: 2015 Prediction (and 2014 look-back)

496: 2014 Prediction (and 2013 look-back)

456: 2013 Prediction (and 2012 look-back)

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 2016, 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 2016

 

· More competitive and abundant mortgages may become available albeit its possible interest rates may rise some time in 2016

· Lower oil prices continue to stimulate the economy and financial markets

· Lack of house building

· Strong rental market

· London likely to continue to boom with expanding population and inward migration

· Booming UK population, birth rate and immigration – less emigration

· Pent up demand from years of low market activity 2008-2012 – people needing to move

· Continuing flood of wealthy Europeans escaping economic problems – in 2016 this is likely to be from Spain (uncertain election outcome), Syria (war), mainland Europe (escaping poor jobs prospects), France (2015 terror actions unnerving wealthy citizens)

· Crossrail to open in London 2017-2019

 

Negative Criteria for Property Prices in 2016

 

· Global economic slowdown continues in China and oil exporting nations

· High levels of debt spending in western countries

· Possible interest rates rising

· Punitive taxation of buy-to-let drives rents higher and makes it more difficult for renters to get deposits to become owner occupiers

· Currency fluctuations affect London property market

· Continued public sector jobs losses particularly in areas exposed to these jobs- rural areas and northern-western areas

· High levels of deposits required even with help to buy measures – increase in deposits for buy-to-let likely after punitive tax measures announced 2015

· Difficulty getting mortgage for average person even with help to buy measures

· Low lending to salary multiples offered

· Threat of terrorism – from ISIS and other extremist groups

· Low oil prices effect Aberdeen and SE Scotland property market

* Prices under pressure in flood prone areas across the UK as weather continues to be more severe than 10-20 years ago

Overall, we believe the positive factor more or less cancel out the negative factors and as the UK economy continues to grow, stability from the Tory majority government and massively booming population with little building will lead to more house price increase across the board – albeit with a ripple effect fanning out from London. The largest house price increase are likely to be in areas 50-100 miles from London, with housing shortages in East England driving prices up. Large increase in house prices are expected in London’s SE suburbs like Bromley, Sidcup and Orpington – along with Ilford and West Drayton - catching up with the rest of London.

 

2016 Predictions

Property Price Predictions

1. London +4% (West London +2%)

2. SE England +6.5%

3. East Anglia +8%

4. Scotland 0%

5. SW England +6%

6. NW England +4%

7. Midlands +6% (East Midlands 10%)

8. Wales +4%

9. North England +3%

10. Northern Ireland +6%

11. Yorkshire +3%

Note: Published CPI and RPI inflation will be ~0.5% (though real inflation will be more like 1.5%).

Rents

These will rise rapidly above house price inflation as buy-to-let tax increases, stamp duty on buy-to-let property and lead to far lower investment in private rental property, and costs for landlords - hence driving rents up as these measures worsen the housing crisis.

Other criteria

· US Dollar to the UK $1.47 / £1 – Dollar increases slightly against Sterling

· UK £ to the Euro £1 / 0.73 Euro – Euro-Sterling track fairly closely in 2016

· Oil price starts year at $37bbl, rising to $50/bbl by end 2016

· UK Gas price 38p/therm

· UK Interest Rates – staying at 0.5% throughout year - equally likely to print money as increase interest rates

· FTSE100 index stays in range 6000-6300

· UK Inflation CPI starts year at 0% then rises to 0.5% by end 2016

· UK GDP staying around 2.5% - continuing existing trend

· Ongoing security situation stays grave in NE Iraq and eastern Syria – with US/French/UK/Russian and Middle Eastern coalition forces weakening ISIS. Tensions between Saudi Arabia and Iran. SE Ukraine continues to quieten down, Yemen problems continue. Possible advance into eastern Estonia.

· Euro interest rates – staying at record lows throughout 2015 (deflation threat, leading to continued bond purchases)

· US Interest rates stay the same after rise mid Dec 2015 – possible QE4 if US economy slows down

· UK unemployment – stays around 5.5%

· Wage inflation – ~2.6% throughout 2015 in both private and public sectors

· GDP growth London 4.5%, North 1.5%, Midlands 2.1%, Scotland 0%. Wales 1.5% (overall 2.4% for 2015)

· GDP China 4%, GDP India 5.5%, GDP Africa 1%, Global GDP 2%, UK 2.5%, USA 2.2%, Euroland 1% - as a whole over 2016

· Gold stays around $1090/ounce level, silver stays at $14/ounce level

USA debt situation - lower oil prices and higher GDP growth improve US finances over 2016 – even though debt levels remain very high. Dollar value remains well supported by higher growth and newly found shale-oil that is economic at prices above $50/bbl.

Inflation – very subdued because of crash in oil prices – in the UK this will mean interest rates do not need to rise as soon as they would otherwise.

Greece, Portugal, Ireland, Spain and Italy – finances continue to improve getting a boost from low oil prices and reduced oil import costs. German economy is hit by lower trade with Russia, though lower oil prices feeding through to lower inflation leads to financial services performing better than expected.

Russia: The sanctions, low oil prices and financial stresses lead to recession and more pressure on President Putin – who expands military efforts to boost/maintain popularity at home. Eastern Estonia could be another target for subversive or outright territorial invasion. Ukraine rumbling away at low level, with real focus being on Syria/NE Iraq for 2016.

Middle East:  House of Saud under huge pressure from low oil prices, tensions with Iran and ISIS insurgency in the region. Middle East and North Africa becomes more unstable with worsening situation in Libya, Yemen and Saudi.

BRIC: Brazil economy continues to suffers from high debt at Petrobras (possible Petrobras default) – 2% GDP growth only. Indian economy booms off the back of lower oil prices and global trade with western nations – 6% GDP growth.

China South China Sea: Military spats continue over disputed islands – all the time risking escalation to war (China-Japan-US navy).

Large bankruptcy: Possible bankruptcy or default of Petrobras and Rosneft – suffering from ~$36/bbl oil prices and massive debts. Both respective government are unable to bail them out.

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 $14/oz to $400/oz and gold from $1080/oz to about $6400/oz. The Dow Jones may rise, but inflation adjusted real terms will decline – still in an overall cyclical bear market.

UK Politics

The EU Referendum will take place mid 2016 – it will be a very close run result and its too uncertain to call – 50/50 either way.

If the UK leaves the EU, then the SNP will demand another Referendum – then they would leave the UK by end 2017. If the UK stays in the EU, SNP are likely to continue within the Union. The Tories will campaign on keeping within the EU and keeping the Union together. They only have 50% chance of success. Meanwhile Labour will continue to implode - with Jeremy Corbyn's leadership resulting in the Labour party transforming into a protest party rather than a real opposition. With SNP assent and Labour demise, regardless of a Scottish Referendum, Tories line up for another 5 year term in 2020.

The economic scenario most likely to be beneficial is staying within the EU - though this is also uncertain and would depend on whether the Tory government reacted by implementing business friendly policies post Brexit that would entice large foreign investment flows from around the world to offset less EU trade.

__________________________________

Look-Back on 2015 Predictions

Property Price Predictions

1. London +2% (West London +1%) Actual 12.1% (West London 4%)

2. SE England +7% Actual 6.7%

3. East Anglia +4% Actual 2.3%

4. Scotland +1% Actual -2.0%

5. SW England +3% Actual 3.8%

6. NW England +3% Actual 0.6%

7. Midlands +3% Actual 3.0%

8. Wales +3% Actual 0.7%

9. North England +3% Actual 2.3%

10. Northern Ireland +1% Actual 6.3%

11. Yorkshire +3% Actual 0.4%

Note: Published inflation will be ~1% (though real inflation will be more like 2.5%), hence real terms property prices will still decline in some rural like Northern Ireland and Scotland. Actual inflation was lower at 0%

Other criteria

· US Dollar to the UK $1.56 / £1 – Dollar-Sterling track each other Dollar was stronger than expected

· UK £ to the Euro £1 / 0.78 Euro – Euro-Sterling-Dollar track fairly closely Euro was weaker than expected.

· Oil price starts year at $55-60/bbl, rising to $80/bbl by end 2015 Oil prices closed at $38/bbl far lower than expected.

· UK Gas price 52p/therm Gas closed at 40p/therm lower than expected

· UK Interest Rates – staying at 0.5% throughout year - correct

· FTSE100 index range 6600-6800 – FTSE ended year at ~6100 lower than expected

· UK Inflation CPI starting at 1% risng, dropping to 0.7% by Feb then rising to 1.8% by end 215 - inflation of 0% because of lower oil prices

· UK GDP staying around 2.2% (slowing down end 2015) - correct

· Security situation stays grave in NE Iraq and eastern Syria – with ISIS affiliated units making advances in North Africa. Russia continues to create security tensions in SE Ukraine and considers advance in eastern Estonia. ISIS correct prediction, Russia focus was on Syria though (quiet in Estonia, quieter in Ukraine).· Euro interest rates – staying at record lows throughout 2015 (deflation threat, leading to more bond purchases) Yes - correct

· US Interest rates staying at or close to 0.5% through 2015 – yes, albeit rose slightly very end 2015

· UK unemployment – stays around 6% until August then starts to rise to 6.5% by end 2015 - continued to reduce to ~5.3%

· Wage inflation – stays low at ~1.5% throughout 2015 in both private and public sectors - close, rose slightly to ~2%.

· GDP growth London 4.5%, North 1.5%, Midland 2.1%, Scotland 0.5%. Wales 1.5% (overall 2.2% for 2015) Accurate

· GDP China 5%, GDP India 6%, GDP Africa 2%, Global GDP 2.6%, UK 2.2%, USA 2.8%, Euroland 1.2% - as a whole over 2015 Accurate

· Gold rising from $1190/ounce to $1300/ounce with silver rising from $16 to $18/ounce by end 2015 - gold dropped t $1080/ounce and silver to $14/ounze

USA debt situation - lower oil prices and higher GDP growth improve US finances over 2015 – even though debt levels remain very high. Dollar value remains well supported by higher growth and newly found shale-oil that is economic at prices above $60/bbl. Correct/accurate.

Inflation – very subdued because of crash in oil prices – in the UK this will mean interest rates do not need to rise as soon as they would otherwise. Correct/accurate.

Greece, Portugal, Ireland, Spain and Italy – finances continue to improve getting a boost from low oil prices and reduced oil import costs. German economy is hit by lower trade with Russia, though lower oil prices feeding through to lower inflation leads to financial services performing better than expected. Correct/accurate.

Russia: Real threat that the sanctions, low oil prices and financial stresses possibly lead to a default of Rosneft, and President Putin expanding military going to war to boost or maintain popularity at home. Eastern Estonia could be the next target for subversive or outright territorial invasion. Slipped in severe recession – no default yet – interest rates rose to ~13% to defend currency crash.

BRIC: Brazil economy suffers from high debt at Petrobras (possible Petrobras default) – 2% GDP growth only. Indian economy booms off the back of lower oil prices and global trade with western nations – 8% GDP growth. Brazil economy in decline.

European and Japanese Wows: Japan continues to print money like there is no tomorrow. These countries have succeeded in kicking the can down the road and its likely to continue for 2015 at least. Possible Japanese financial crisis and Yen crash – off the back of poor financial management by Japanese government. Europe and Japan “kicked can down the road” – no crisis yet.

Large bankruptcy: Petrobras and Rosneft go bankrupt – suffering from ~$60/bbl oil prices and massive debts. Both respective government are unable to bail them out. No bankruptcy yet – may occur early 2016

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 $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 overall cyclical bear market. Not happened yet – less likely now oil prices has dropped to $38/bbl.

UK Election

Because the election outcome is so uncertain and also so important for the forecast of the economy and hence house prices, we have modelled the two potential outcomes which will occur, either 1) Tory Coalition or Majority; or 2) Labour Coalition or Majority.

Labour: If Labour win power, our view is that the economy will tank because international financial institutions, wealthy individuals and businesses will shun the UK and invest in other countries instead - "in the global market place" since Labour will undoubtedly: 1) increase taxation; 2) increase regulation; 3) increase deficits, public sector spending and government size; 4) implement anti-business policies. Unemployment will then rise, GDP growth will decline and house prices will drop sharply along with this. If Labour form a Coalition with the Liberal-Democrats or SNP, the outcome will be the same since all three parties have left wing policies.

Tory: The converse will be true if the Tories win an outright majority or form a Coalition with UKIP, the Liberal Democrats again and/or the SNP. Namely: 1) lowering taxation; 2) less regulation; 3) smaller deficits and public sector spending and smaller government; 4) continued implementation of pro-business policies. Unemployment will drop further, GDP growth increase and house prices will increase sharply along with this. The economy will boom >3% GDP growth helped by lower oil prices.

Its really that simple. But the outcome of the Election is impossible to predict. Its just too uncertain. Enclose a chart describing the two scenarios, we hope this helps. The bottom line is - by end 2015 property prices will be all about who won the election. Correct – Election could have gone either way – went in Tory majority and hence house prices continuing to climb as predicted.

We hope this Special Report helps with your property investment strategy and tactics. If you have any queries, please contact us on enquiries@propertyinvesting.net

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