Could the UK property market be about to enter 18-years of decline?
According to controversial American forecaster Martin Armstrong property prices in the UK have peaked and an 18 year downturn is due.
Armstrong, a former investment manager, is said to have predicted the 1987 crash to the day (and the subsequent low), the Nikkei top, Russia’s debt default, and the Long-Term Capital Management crisis.
Armstrong’s Economic Confidence Model, was based on economic cycles observed through reviewing hundreds of years of data. He describes a long-term business cycle of 309.6 years, which can be split into six waves of 51.6 years, then split into six waves of 8.6 years each. The total days in one 8.6 year cycle is 3,141 – pi times 1,000 giving the model the name the ‘Pi Cycle’.
The upshot of the argument is not price-to-earnings ratios, excess debt or surplus of supply. It’s government intervention. “What will make the peak is a rise in taxes”, he says. Bankrupt Governments will make “insane increases in taxes to try and stay afloat”. There is also, he says, a lack of long-term mortgage availability i.e. lack of credit.
In the UK, government policies have long contrived to drive up property prices with foolish systems of credit, official inflation measures not including property prices, suppressed interest rates seeming to keep borrowing costs down and restrictive planning laws. For all the misinformation carried out by the Treasury about getting the UK’s finances in shape, government is still spending beyond its means. Of the few places left to tax where it doesn’t already is real estate.
Unoccupied property is a growing issue, particularly in London. We may see a tax on that. The re-rating of council tax bands so that rates go up for more expensive properties also seems increasingly likely.
The costs of moving in terms of tax, lost mortgage deals and tighter lending already mean that many are choosing to stay put. But will price follow volume? Armstrong thinks so “prices come into line with cash available for deals” he says. It should be stressed that in London with cash buyers on the rise, and lending tighter, that is already happening and hasn’t driven down prices yet.
The next six months should indicate whether the declines he sees ahead are indeed emerging.
Written by: The Team | On: July 24, 2015