As 2022 gets under way many will be wondering what lies in store for the housing market and, as ever, we will be spending the year deciphering the political and economic messages of the day to arrive at our house price predications.

Two hundred years ago, in 1822, the French scholar, Champollion, announced a breakthrough in the understanding of ancient Egyptian writing, aided by the Rosetta Stone. Clearly no one would be so unkind as to liken my lovely charts and graphs to a series of hieroglyphs, but I did think it would be worth reflecting on how we researchers translate actions and events into numbers and trends. 

Our analysis and commentary has to be viewed alongside the assumptions behind them at the time. Of course the difficulty comes when the assumptions change, which makes forecasting far more difficult.

Since the GFC, perhaps the most unreliable economic variable has been the pace at which interest rates have been expected to rise. That has meant that each time we have come to reforecast there has generally been a bit more capacity for house price growth than we had previously expected.

In the aftermath of the Brexit vote, that was superseded by political uncertainty. But equally changes in housing policy and regulation have the ability to blow things off course, whether it’s Help to Buy, mortgage regulation or stamp duty holidays.

On top of this you need to layer underlying market sentiment which can be much more unpredictable than is conducive to accurate house price forecasting. So at the beginning of the pandemic, we were looking at how housing markets had reacted to previous recessions. That was until it became clear that the experience of lockdown was causing a behavioural change in terms of what people wanted from their home which, together with the substantial support the Government provided to the economy, sparked an unexpected mini boom in the housing market.

Because of all of these factors, there has been much more of an onus on us to revise our view on house prices regularly over the past 18 months.

For example, at the half year point we upgraded our house price forecasts from +4.0 per cent to +9.0 per cent for 2021. That reflected the extension to the stamp duty holiday, the relaxation of social distancing and a noticeable shortage of stock available on the market, none of which could accurately have been predicted in November 2020 but which we had to take into account when they occurred.

In terms of what can dislodge a forecast, it’s very much as Harold Macmillan put it when he was asked about the greatest challenge for a statesman: 'Events, dear boy, events'. The key from our perspective is responding to those events and giving a reasoned view of what they can be expected to mean for the market.

2022 has its fair share of unknowns. We await to see how the market and broader economy will react to the Omicron variant and what this will mean for interest rates. Strangely, if that encourages another bout of upsizing, that could give the market a second wind at a time when we were expecting a soft landing.

Further information

Contact Lucian Cook

Savills Residential Research