Was this a forecast?
The Governor of the Bank of England has warned ministers that house prices could crash by more than a third in the event of a disorderly, no-deal Brexit, according to a report by Gavin Cordon, Press Association Whitehall Editor.
Yesterday, Mark Carney briefed Theresa May and senior ministers on the Bank’s planning for a “cliff edge” break with the EU at a special Cabinet meeting on Thursday to review the Government’s no-deal preparations.
It is understood he warned house prices could fall by up to 35% over three years in a worst case scenario, as sterling plummeted and the Bank was forced to push up interest rates.
“What could be lost in the alarmist headline is that Carney wasn’t making a forecast,” says John Holden Chairman of McCarthy Holden.
We’ve been here before
“And hang on, haven’t we been here before?” Holden continues.
Back in May 2016, the then Chancellor of the Exchequer George Osborne warned that following a leave vote house prices would drop by 18%. Around the same time US President Barack Obama said Britain would go to the “back of the queue” for trade deals with the US if it votes to leave the European Union.
“So again today we read headlines which could damage confidence further in both the wider economy and the UK residential property market.” continues Holden.
Understanding the context
Fortunately, some leading economists have stepped up and put Mr Carney’s comments in a framework of context.
Take BBC’s economic editor Kamal Ahmed, who stated today that it appears that the Governor wasn’t providing the Cabinet with a forecast of what the Bank believes would happen in the event of a no-deal Brexit. He was briefing the Cabinet on what preparations the Bank was making if that does happen, including last November’s stress test.
It was not a forecast.
It was an apocalyptic test where the Bank deliberately sets the parameters beyond what might reasonably be expected to occur. The major banks all passed the test, giving reassurance that the financial system can cope with whatever happens next year.
The Governor believes that a ‘no-deal’ scenario would be bad for the economy. But not as bad as the headlines today which are based on a doomsday scenario that is not actually forecast to happen.
The market insight from John Holden is that “On the shop floor at McCarthy Holden the first half of 2018 saw one of the poorest levels of house sale transactions for some time, however, since July positivity was in the wings because house buyers began surfacing again with intent.”
“Right now, discerning house buyers are seeing the current market conditions as an opportunity to move whilst prices remain static. The news for house sellers is that you can and will sell successfully in today’s market, but don’t expect a fancy or inflated price.”
“Large house price gains are gone for a while, but like all markets when they rebound from a low they come back with a sharp and fast uptake. Savvy buyers know this and are taking care of business now” concludes Holden.