Martin Vander Weyer

How far will house prices fall?

How far will house prices fall?
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‘Forecasting is a mug’s game’ is a truism attributed to everyone from fantasy author Douglas Adams to former Bank of England governor Mervyn King. It reminds us that commentators should never be smug when they call the near future right, or quick to crow at others who turned out to be wrong. I may have been a step or two ahead of the pack this season on inflation and recession risks and I’ve always said crypto, which we’ll come to in a moment, was the road to perdition. But I confess my record on property trends is frankly lamentable.

Way back in the ‘negative equity’ era of the mid-1990s, I said house prices would stay flat for the foreseeable future, bricks-and-mortar would cease to be essential family assets and Britain would transition to a German-style mass rental market. In April 2020, when the property market was suspended in the first lockdown, I predicted it would ‘reopen in the autumn with sales being agreed at, say, 15 to 20 per cent below pre-virus levels’ but that would at least be a boon for affordability. In fact it took off like one of Elon Musk’s rockets and its un-affordability, expressed in the ratio of average house prices to average earnings, now stands at a record high.

So what next, after a 12 per cent price surge in the past year? Mortgage rates are rising, incomes are about to be severely squeezed, all prospects are gloomy: home values must fall. Yes, but by how much? What’s different from previous downturns is the state of the job market: unemployment is at a 48-year low of 3.7 per cent and the junior minister Rachael Maclean wasn’t entirely wrong (even if she was tone-deaf) when she said people have the option of moving to better-paid jobs or working longer hours as a response to rising living costs.

What’s also different is post-Covid psychology: many families still yearn to move – out of cities, or in my case into the middle of one – to suit new work patterns and personal priorities, and many double-income couples are more determined than ever to nest as first-time buyers. So if I have to make this call, I’ll say house prices will shed some of their recent froth, then stagnate until we see the other side of the inflation spike, a couple of years hence, but they won’t plunge like in 2008. Whatever you do, however, I strongly advise you not to base a life-changing buy or sell decision on reading this paragraph.

Lawless cryptoland

The news that Tether had fallen off its peg probably didn’t disturb your breakfast – unless you’re an ardent crypto-punter, in which case it should have had you choking on your coffee. Tether is a ‘stablecoin’ that is primarily used to facilitate trading between other cryptocurrencies; it is ‘pegged’ one-to-one to the US dollar with the backing of a reserve of cash and government bonds, and there’s a notional $80 billion worth of it in circulation. But last week, amid doubts about the sufficiency of its reserves, it dipped to 95 cents – following the near-total wipeout of two smaller ‘algorithmic stablecoins’, Terra and Luna, which evidently had no reserves at all.

Confused? Me too. But this is all part of a wider shakedown of the crypto market in which the ubiquitous bitcoin has lost more than half its value from a vertiginous peak in November. Despite its volatility, many players made big money out of bitcoin’s rise and began talking of crypto as a serious investment asset class – comparable to gold as a ‘safe haven’ that is impervious to world events and state interference. In fact bitcoin’s price performance has been nothing like that of gold, which rose in the early pandemic and again at the outbreak of the Ukraine war but has otherwise stayed comparatively steady in recent times.

Bitcoin movements, by contrast, appear driven (to borrow the title of Charles Mackay’s 1841 treatise on market manias) purely by ‘popular delusions and the madness of crowds’. If the bitcoin graph resembles anything, it’s the Nasdaq market of US tech stocks, also down sharply in the past six months and populated by many of the same high-risk investors. Crypto world has yet to implode as sceptics believe it one day must. But recent eruptions tell us it’s lawless, unstable, probably ephemeral – and certainly not the foundation of the new global financial structure its cult members claim. You might still make money there, but you gamble at your peril.

Challenges in paradise

Contrary to my admonition about not letting me tempt you into property deals, how do you fancy owning a pub in paradise? Briefly back in France, I’m asked by the mayor of St Pompon, my Dordogne village, if I can help find a successor to Bruno, our late lamented barkeeper whose premises have been shuttered for more than two years.

Out of season, this quiet, agricultural, Le Pen-voting community may not look much of an investment prospect. But tourists and second-home owners will surely be back this summer, and a well-positioned bar with a flat above for €150,000 is a bargain in anyone’s language. Keen as I am to boost local prospects, I hope you’ll also forgive – and even enjoy – a plug for our village restaurants, each suffering different economic challenges of the moment.

La Forge’s value-for-money offering draws a full house but Thomas the maître d’ is run off his feet because he can’t find staff to hire for evening service. At L’Envie des Mets, my party of three are the only diners willing to forget the cost of living crisis and sample the €50 menu surprise of the talented chef duo Gregoire and Laëtitia. And at the Ferme Auberge du Roc, noted for foie gras and confit de canard, proprietor Philippe tells me ‘la vie est difficile’, not least because avian flu has devastated flocks and ducklings from breeders are in short supply.

But still there are ample compensations, he says, gesturing at the verdant hidden valley where his ducks normally roam free ahead of their appointments in the gavage shed. We pause to listen to nothing but birdsong: C’est le paradis.’