Is the housing market about to take off again? I am no economist but economists have a dismal record at clairvoyance.The reality is that we all think about the direction of the housing market – and predict it – whether we intend to or not. The explicit thought, “I believe house prices will rise” may never surface in our conscious minds but the conviction of that belief is demonstrated irrefutably in the actions of a huge number of people every day of the week. The husband who spends his weekend bodging the house with improvements, the wife who drains the family savings or extends the mortgage to do up the kitchen – both must believe that house prices are going up. Most changes in economic trends are cogently, although not completely, explained by reference to our collective beliefs about the speed and direction of the housing market. The staff at B&Q are a lot less busy now than they were last year. It is the housing market. Car dealers are doing slow business. Analysts cite the housing market. Clothing retailers are seeing steep falls in sales. They blame the housing market. Hang on. What should buying clothes have to do with moving? The answer, as we all know, is nothing. The only link is that our spending patterns depend on how well-off we feel, and that “feelgood factor” seems to depend on the housing market – or more precisely, house prices. Economists cannot explain the feelgood factor because it is a matter of mass psychology. Psychology is one of the least fruitful sciences, signally failing to yield any hard, determinate laws which would give us the power to predict human behaviour. The feelgood factor is conjured up by economists at the point that their rational explanations run out. Shy as the economists may be to analyse it, us amateurs can have a guess. The powerful thought motivating much of our economic behaviour until last year was “My house was only worth 50,000 when I bought it. Now it’s worth 150,000. I’m 100,000 better off. Whoopee!” From there, it is a short step to working out how to make the most of that. Turn the equity into cash by means of a slightly bigger mortgage. Go on – with interest rates so low, you will hardly notice the difference on the monthly payments. Last year’s booming sales of kitchens, cars, even clothes. Now we are all a bit less sure that this miracle of easy wealth is going to last. Thus, the slowdown. The truth about predicting the housing market is just like predicting the stockmarket. It really counts towards our financial well-being and there is a desperate need for useful financial advice but there always is, and must necessarily be, an absolute absence of that very commodity – useful advice. Or, if you prefer, accurate clairvoyance. Which is what advisers might like to supply when asked that inevitable question – “What is going to happen to the stockmarket?” Because you are an ordinary mortal you reply – “If I knew that, I would not be sitting here, I’d be cruising the Pacific.” But you will still have your own, private view of it. There are a few timeless truths in the world of money. One has just been mentioned. Another is, “If it looks too good to be true, it probably is”. Less well-quoted but equally undeniable is this: if everyone’s predicting it, there’s no way. The direction and the timing of movements in the housing market are anybody’s guess. And whatever everyone’s guessing, that is the one thing that will not happen. Here is the time to admit my vested interest. I have an expanding family and would like to be able to afford a home in London without committing serious fraud, robbery or murder. Could everyone please stop guessing a house price crash might happen? That way, it just might. Money Marketing50 Poland Street, London W1F 7AX
How has the recent Judge case impacted on IHT planning using the private residence?
JO Hambro Capital Management
JOHCM American Growth Fund
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