Ditch the sou’wester for shades

That was the view of a leading agent’s head of research during a long-awaited coffee recently. The conversation had been prompted by a Financial Times story: ‘Why haven’t house prices collapsed?’ It was a very economist- and academic-heavy piece. To be fair to the professors, the whole thrust – self-evident in the headline – was more a reflection of the FT’s entrenched bearishness towards Brexit Britain.

The conundrum exercising the paper was that if the economy tanked last year, why have house prices continued to soar into this year? It’s all about supply and demand, supposedly cornerstones of economics, my guest laughed: “Never ask an economist to predict house prices.”

The past two housing crashes in the UK were caused by specific events, rather than economics. For 1988, it was the removal of double mortgage relief after a disastrously inflationary six-month interregnum by chancellor Nigel Lawson; in 2008, the cause was a mortgage famine following the banking crisis, largely caused, in itself, by dodgy lending to homebuyers.

Likewise, the current boom has been fuelled by interventions by the latest chancellor – Rishi Sunak’s extended stamp duty holiday and employment support – and a far more nuanced picture on jobs and household economics than the headline data suggests. People working from home and with sufficient income to buy homes have probably never had it so good.

Don’t get me wrong, I’ve worked with many economists and have always been impressed by the intellectual rigour of their (often opposing) arguments. But it strikes me that the wider profession is wrong about short-term trends more often than it’s right.

Look at their recent record, especially so in the second quarter of this year. Output, employment and multiple industry-specific surveys have almost all been more benign than consensus forecasts (inflation excepted, see last month’s column). The government’s Office for Budget Responsibility (OBR) undershot its prediction for national borrowings in April by £7.3bn, or 19%, made only the month before, and raising the prospect of less draconian future tax hikes.

Armchair experts

This has been tough reading for the armchair experts among the liberal-left commentariat who gleefully pounced on every negative data point or gloomy forecast from the OBR last year.

The accuracy of their political forecasting can at least spare economists’ blushes. Most didn’t see Brexit, the general election or the Hartlepool by-election coming.

Many thought their new-found hero Dominic Cummings’ parliamentary testimony would rock, if not topple, the prime minister. In the event, Johnson’s poll rating wobbled only briefly before starting to recover in recent weeks, according to Politico.

Why do economists and commentators get (not just) housing so wrong so often? Put bluntly, pundits should get out more – as agents do. And, literally, smell the coffee, as we were doing. Not least because the appearance of artisan coffee bars in unloved parts of town often presage local prices taking off.

Pubs are probably an even greater barometer of the zeitgeist. The recent reopening of hostelries undoubtedly boosted the national feel-good factor (a key market driver, oft-repeated by the late Tony Pidgley of Berkeley Group).

Conversely, back in 2006, I visited a bar in Dublin at the height of the ‘Celtic Tiger’ boom: pints were pouring, shoulders rolling, backs being slapped. I didn’t have a spreadsheet to hand but thought, “these guys are going to be in for a bit of a surprise soon”. Prices in the Irish capital were about to fall by 60% over the following six years.

That’s very unlikely in Britain, seemingly despite the FT’s fervent hopes. Rather, on the basis of Dylan’s edict, his signature shades rather than sou’westers are more in order for at least the rest of this year.

Alastair Stewart is an equities analyst and consultant