Author and financial forecaster Fred Harrison has strong opinions on the current state of the UK housing market. The economist invented the concept of a property market which revolved every 18 years. So far, his theories have proven true. Will the bottom fall out of the house buying trends set in 2020, in 2022? Not according to this economist.
Key Takeaways:
- The gentleman is not for turning – Harrison holds his original estimate of no housing crisis for another 4 years
- Successful past predictions include both housing market crises in the early 00’s and the year 1990
- Harrison predicts government will increase financial investments in realty to supplement financial uncertainty
- Other housing market specialists predict a significant rise in repossessions over the next two years
Speculation Over the UK Housing Market
For months now, economists, financial advisors, and estate agents everywhere, have predicted an oncoming drop in housing prices. While most advise that the housing market is set for a downwards spiral, one economist and author is naysaying upon good authority – his own.
All over the market we are hearing different predictions. Credit Suisse announced an expected 15% drop while Capitol expect a 12% drop over the next two years. Not so for Fred Harrison, who insists that his 18 year model is the only true prediction of property prices in the UK.
What is the 18 Year Pricing Model for UK Houses?
Fred first mentioned this innovative model back in his 2005 book “Boom and Bust”. In this title, he explained that UK house prices rose, rose, and rose again for a period of 18 years. At the end of this rise, the housing market would crash, and the cycle would begin again. He predicted the next crash in 2008 would happen 18 years after the 1990 crash.
The author and economist created this theory by analysing over 100 years’ worth of past data. He believes that the cycles he identified have already affected our property prices for the last 300 years. Ever since the Industrial Revolution let go its hold on land and property, the market has risen and fallen in these definitive 18 year blocks.
Sound unbelievable? Harrison checked this data by using similar stats taken form the USA. When he found a match, he compared these similarities to data drawn from Japan and Australia. Each time, he witnessed the emergence of an 18 year cycle.
If Harrison’s predictions are correct, then we still have three years to buy new property before we cannot afford it. You can learn more about property investment through our page, where we will be happy to direct you.
How it Works?
The 18 year cycle works in waves. In the first wave, property prices grow slowly but steadily for 6-7 years. This stage in the cycle facilitates the market’s recovery from the last crash. When things are steady, the market enters a middle stage. The market will encounter unexpected issues. It will dip slightly and cause a panic. A period of calm will follow this. Eventually the uncertainty passes, and the market starts to grow again.
Asides from minor wobbles or boosts during the next few years, the market will grow until it flounders. Signs of the upcoming crash will appear up to 5 years before it happens. Lastly, the market will go into freefall. It will hit a low point, stay there, and eventually stabilize. This triggers the cycle to start again.
More from Fred Harrison
When interviewed about whether this model would hold up to the scrutiny currently placed on the UK housing market, Harrison said he wholeheartedly believed in his predictions. The only thing that would stop a crash in 2026, he believes, is if the President of Russia launches a nuclear attack. In this case he jokingly errs on the side of caution and says “all bets are off.”
Harrison believes that a combination of floundering prime ministers will invest copious quantities of public spending to try to assuage public debt. As the cost of living soars and the public debt grows, governments in economically driven countries will invest heavily in their systems. Harrison explains this will have a knock-on affect on the UK housing sector, which should stave off crashing as a result.
What Other Economists and Experts are Saying?
Of course, no matter how decorated Harrison is, his is just a single voice. The secondary expert consulted happened to agree with his opinion. Rob Dix, from Property Hub fame, insists that future increases in interest rates are unlikely to be quite so overwhelming as some market specialists fear. He believes that these miscalculations will power a return to level the playing field of supply and demand.
Dix added that the disparity in pricing and interest rates will be harshest where property demand is highest. Currently, this highlights London and the south east of England.
Asides from Dix, there are those who believe that the 18 year property cycle theory is at its end.
Those that Disagree…
Several global leaders in real estate have spoken out to say they believe the 18 year cycle is about to break. Knight Frank, a leading London based real estate consultancy, released a statement to say they expect house prices to fall by a whopping 5% in 2023 alone.
Knight Frank expect this harsh drop will repeat the following year, leaving uncertainty for many sellers. However, Knight Frank is the same company that said the bottom would fall out of the market in response to covid when it skyrocketed. When it comes to predictions about the property market, their track record is nowhere near as strong as Mr Harrison’s.
A second opinion sought from pro buyer and customer representative Rob Pryor indicated that he believed interest rates could rise as high as 6% in the coming year. He also predicts that house prices could fall as much as 10% during the same period.
With Halifax indicating the current median house price is sitting around £290,000, the market could afford such a drop. Housing market experts are pointing to these prices as indication that the market is unsustainable. Others cite the all-time-high of the cost of living crisis to be a major factor for concern. This high has impacted the cost of mortgages, with home buyers struggling to land a deal better than 5%.
Moneyfacts report a leap of 4.08 points in the cost of a mortgage in the last twelve months. This seemingly slight increase means buyers now pay an extra £5k+ per year on each mortgage sold. To date, about 66% of buyers require a mortgage to afford their own property. At this rate, the future does look uncertain if we discard the 18 year model.
House Price Facts and Figures in the Face of the Current 18 Year Cycle
As it stands in 2022, mortgage sellers are pushing their prices up. Moneyfacts reports that companies like Accord Mortgages, Aldermore, and the Yorkshire Building Society, have already paused mortgage lending as of September/October 2022. These providers are acting on the belief that interest rates are about to rise significantly. When mortgage providers are becoming afraid, it is no wonder the rest of the economy pays close attention.
Knight Frank experts say that 4 million mortgages have graced the homes of first time house purchasers since 2009. That is 4 million people who have bought a house for the first time since the last property market crash. It also means that is the number of people who face an increase in price of monthly payments.
Quilter, solid providers of financial sense, say that increasing rates set by the BOE will keep pushing prices up. This is not all unwelcome news, since it will force some sellers to downsize properties, freeing up new supply for the market. This will pair with a raised cost of living, thus taking the wind out of the sails of a potentially volatile market.
There are two ways this could go. The market could explode or implode. Advisors at Shaw Financial Services said in a statement that they expect repossessions and arrears to increase in the next 2 years. Of particular concern are those households who benefitted from a less than 1% mortgage. They will find a jump as much as 6 times their current rates plague them on top of a cost of living crisis.
Predictions for the Housing Market in Q4 2022
Housing developer Barratt recently announced a dip in new home backlogs. They were selling three hundred and this has reduced to just under 200. The number of buyers is falling, with experts predicting further drops in prices and in demand in the coming 12 months. The Residential Market Survey paints a gloomy picture for homeowners, with no let up in site.
Although the predictions for a housing market crash go both ways this year, there are few theories more solid than the 18 year cycle theory Harrison insists upon sticking to. Time will tell whether his predictions of the coming years hold fast, or whether this is the property market crash that brings it all down around our ears.
