No Forecast Means More House Price Falls

by Neil Faulkner on 23 December 2008  |  38 comments
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Nationwide, Halifax and the Council of Mortgage Lenders have chosen to be secretive with their annual forecasts, but by doing so they`ve revealed more than they intended.

Nationwide, Halifax and the Council of Mortgage Lenders (CML) make property-price predictions every year. Most years, they're hideously wrong. You can learn more about this on The Fool website, for example in the article Five Property Warning Signs To Watch, and in the podcast The Housing Market Will Not Crash.

When I was informed this morning that none of these organisations are doing forecasts any more I was overjoyed. I think these predictions receive far too much attention in the media and are given way too much respect.

Unfortunately, my informant was a little optimistic. The three organisations haven't given up on predictions; they've simply decided not to make forecasts this year. That makes more commercial sense. Nationwide and Halifax make predictions for one reason alone: to get their names in the papers. By not making a prediction this year they still get in the papers because it's so extraordinary, but next year or the following one they'll probably have to resume making predictions to make a decent story for the hacks.

We also must be cynical about the organisations` reasons. Here they are, as reported by The Guardian:

Halifax said that it's 'not appropriate' to make a forecast because Lloyds is due to take it over next year.

Nationwide said that the market was too volatile as the figure could change `very quickly early on next year`..

The CML simply said the market was too volatile.

If they'd all said the same story then it might have been more convincing, but Halifax's excuse was different (not to mention strange). That makes it an incredible coincidence that they all stopped predicting this year. You could argue that Halifax was just trying to save face; it didn't want to be found to be abysmally wrong. But that hasn't stopped them before. Nor has it stopped Nationwide or the CML, so why stop predicting now?

There must be another reason, and that is a very cynical one. I believe these organisations don't want to make predictions because they know that prices will fall further next year. They are also confident that prices will fall a lot further. By announcing such a forecast to the National Press and to television, it might have become self-fulfilling, because more people will choose to hold off buying properties till prices reach the levels that are being forecasted.

Consider also the wording of Nationwide's excuse for not forecasting this year. It says that the market is too volatile to predict as the figure could change `very quickly early on next year`. I read a lot of public-relations propaganda, so I know it when I see it. What they are hinting is that the market may rebound strongly within a few months. Of course, that is incredibly unlikely, which is why they said it like this, instead of making a full-on, outrageous prediction of house prices rising again.

Let's consider the last time that Nationwide refused to make a forecast. It was, according to The Guardian again, back in `92 and `93, during the property-price crash. But falling prices don't necessarily mean volatile prices any more than rising prices do. It seems a huge coincidence that Nationwide has only thought that prices were too volatile to call during the two times that prices have fallen since they began making predictions.

Even more strangely, now is actually one of the easiest times to predict at least the direction of the property market, even if it's not possible to predict how far it'll go. It's extremely rare that all data points overwhelmingly in one direction, as it is doing now. For clarity's sake - that direction is downwards.

These organisations - Nationwide, Halifax and CML - are declining to predict publicly because they are more certain of their forecast than ever - that prices are going to continue in a sharp decline. By being secretive they've said more than they intended. In my opinion, they would have been better off making a forecast showing a modest decline. That probably-wrong prediction would have been forgotten by most people in 12 months anyway, as usual.

Prices will continue to fall. It's just a question of how much. I'll leave forecasting the figure to PR propagandists but, as you can read in 40% House Price Rise Unlikely, you'll have a hard time finding one who'll get it right.

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