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August 9, 2010
How Will House Prices Change Over The Next Ten Years?
Big Four Accounting firm Price Waterhouse Cooper put out their quarterly outlook on the economy and property two weeks ago. Their assessment for property is mixed. They believe it is a 50/50 probability that property prices will rise in real terms over the next ten years. This has to do with a variety of factors, including interest rates, GDP growth and lending behaviour from banks.
There is, as you would expect, a lot wisdom to this prediction. Interest rates are bound to go up as the economy improves, as they are the most effective way of regulating the growth and contraction of a country’s economy. As interest rates rise, it will be costlier to borrow money and more advantageous to keep cash in banks. This will make buying property more difficult and less appealing, since it will cost more to buy a property and the alternative of banks are better or at least less worse. As well, a higher interest rate will increase the value of the Pound Sterling as international companies and investors will want to take advantage of the higher savings rate.
There are some ways in which PWC’a report is unhelpful to potential investors. Most importantly, it looks at nationwide house prices, which is difficult to consider. Property, unlike equity or bonds, does not have a central market with uniform trends. It is far more fractured and dependent on local prices. Location is vitally important in property, and certain locations will grow at vastly different rates than others. House prices in Wigan, for instance, will react much differently than those in London. What growth there is in the economy is focused on financial and service industries, which are concentrated in major cities. If a region is going to see economic growth then property there will grow in some way with it, a people are able to buy better houses, spend more at retail and leisure outlets and have jobs which require office space.