House price expectations

Tidy Street, Brighton
Originally uploaded by seadipper

I just received a questionaire from a Brighton estate agent asking what I expected would happen to house prices in the next year.

I do not have a crystal ball but If there was no expection of inflation I would say that prices are 20% too high. The house two doors away from me in a street like this is let for £1500 a month which is about £15,000 a year net. Others in the street, which is near the station, are on sale at about £380,000 which is about £10,000 less than what they were at the peak 12 months ago.

But I would expect inflation at 4% in the next 12 months and 7% in the 12 months after that. It might have been higher but the Monetary Policy Committee seems to be able and willing to resist calls to reduce interest rates.

If you work out how much you would need to leave in an account to get that amount in interest, and add on a bit for the expectation of future growth and allow for inflation, the right figure for a house such as those in the picture figure is in the region of £340,000. I think that is where the prices will settle in due course. But trading will be at reduced levels while present uncertainties and lack of confidence continue. There is a lot of fear around.

I would also expect to be the rental market to be fairly stable or possbily buoyant and rentals to rise roughly with inflation. This is the normal pattern.