When the housing market first began to boom following the financial crash, many thought that it was a temporary phenomenon that was unsustainable. However, since then, we’ve only seen prices continue to rise, with no signs of slowing down.
But, how do we know if these prices are set to last and how do experts predict them in the first place? In this post, we take a look at 2016 house prices, what the future may hold for property price predictions and how a property price forecast is made by the experts.
House Price Predictions for 2016
Experts predict that house prices could rise in some areas by as much as 8% in 2016, with the number of homes sold also set to rise. However, there are also a lot of unknowns in the market that could affect this prediction, chiefly interest rates and the referendum on EU membership.
Many main forecasters are factoring interest rate rises into their predictions, but some are still not. A rise in interest rates – if or when it comes – is likely to make growth slow or falter.
Some analysts also predict that house prices could suffer thanks to ‘looming Brexit fears’. This has led to jitters in the buy-to-let market and a weakening pound. A selection of investors have told RICS that they expect house prices in London to fall in the run up to the referendum due to uncertainty over the outcome.
Finally, Halifax, who are Britain’s biggest mortgage lender have predicted that, despite this uncertainty, a shortage of property for sale will continue to heap pressure on the market. This property shortage has forced the average price of a home to £208,286 and the ‘substantial’ gap between supply and demand will cause this to rise throughout 2016.
So, with prices appearing set to rise in 2016 despite uncertainty, what do the long term trends look like?
Long term trends
In the next 10 years, the National Association of Estate Agents and the Association of Residential Letting Agents have predicted that the price of the average UK home will rise by as much as 50%. They believe that the price of the average home will rise to £419,000 by 2025, while the price of an average London home will nearly double to £931,000.
Overall, it is thought that the average UK house price will rise by 4.1% a year, with average London prices rising by 6.3% per year.
As such, it looks like high house prices are set to remain for the next decade or so, according to figures. Now, let’s look at how these figures are forecast.
Property Price Predictions: How they’re forecast
The Office for National Statistics (ONS) has a variety of different methods to construct house price indices and to create a property price forecast. Specialised and complex methods are required including: a stratification matrix, hedonic regression, repeated-sales measure and sale price appraisal ratio (SPAR) methods.
These methods are used to overcome the peculiarities surrounding house prices and how they differ from other price indices. A number of factors influence this, including the fact that no two houses are identical (even those on the same street) and the fact that the same house is not traded in consecutive periods (unlike in other indices). This means that, because both the location of the property and the features of the property impact on the price, average sales prices or valuation estimates cannot be used as it would create a very unstable price index.
The use of the following methods ensures that the price index remains stable and can adjust depending on the properties sold in each period. The methods are:
- Mix-adjustment with a stratification matrix
- Hedonic regression
- Repeated sales method
- Sale price appraisal ratio
In the UK specifically, hedonic regression and repeated sales methods are used most commonly. You can learn more about the use of all of these methods, as well as their advantages and disadvantages in House Price Index User Guidance and Methodology guide which can be downloaded here.
House Price Calculators
All of this information can undoubtedly leave your head in a bit of a spin. Thankfully, if you’re just looking for historical house price data, a price calculator for what your home is currently worth or a heat map of local data, the Land Registry can help.
Of course, if you want an instant valuation or a home valuation, we can also help free of charge with no obligation.
Property price predictions are incredibly difficult to calculate and it’s always difficult to get an accurate property price forecast. However, most experts seem to agree that despite current uncertainty, prices will rise in the coming years, potentially even doubling in the next decade.
Image courtesy of iStock.