View more on these topics

Juggling the crystal balls

Only clairvoyants can predict the housing market and the stockmarket

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


Judgement day

How has the recent Judge case impacted on IHT planning using the private residence?

Ghiloni makes return in broker sales at the Pru

Former Britannic Asset Management chief Francis Ghiloni is returning to the industry as Prudential intermediary sales director. Ghiloni, who left Brit- annic AM last year after 22 years with the group, replaces Chris Traynor who has moved to Payment Shield. He will head a team of 165 sales advisers backed by a support team of […]

Ami urges mortgage intermediaries to plan for Hips

The Association of Mortgage Intermediaries has created a factsheet to help mortgage intermediaries to plan for the introduction of home information packs. Ami is concerned too few intermediaries are considering the impact Hips could have on their business, and hopes the factsheet will encourage firms to plan ahead.Hip implementation could present estate agents, surveyors and […]


News and expert analysis straight to your inbox

Sign up


    Leave a comment


    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm