UK Housing's Downward Pressure Index

"THE CRASH will come when few are expecting it."
: so say I as 2006 is about to begin

Which means it has a much greater chance of beginning in 2006 than 2005 because there were so many forecast of a sharp price slide. Now many have decided a soft landing has occurred and a 2006 rise is possible, and some aggressive buyers are taking on truly ABSURD amounts of debt in order to bet on a pick-up within a few months. Meantime, banks have NOT tightened and are still lending money at ridiculous rates of advance (like 90-100%) even while their portfolios have begin to deteriorate. It is as if they are pretnding to be in robust health, even as they are being eaten by an internal cancer. A surprise rise in rates, or any other number of shocks, could result in a VERY RAPID and permanent change in market sentiment.
Dont get sucked in at this truly dangerous moment of unjustified confidence.

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Let's see how the Bearish way of thinking contrasts with the comments of a Mainstream bull.
To illustrate, I will dissect a report of Property in 2006, just issued by Savilles:

KEY RISKS IGNORED in the Savills Report:
See report:

+ "There is little evidence of household debt emerging as a trigger for substantial house price falls"
(Loose lending, a rate cut and market hype from VIs, have kept this important risk at bay for another year. but instead of receeding, both the debt and the risk is larger tahn one year ago.)

+ "We are not expecting average UK house prices to rise in 2006, but anticipate growth in line with incomes within three years."

(Affordability is not sufficient for FTBers to return as major buyers in 2006. The market in 2004 and 2005 was only been propped up by BTL speculation. An Affordability for FTBers does NOT improve if prices keep pace with income growth. The market needs a sustained period where property prices receed in relation to incomes for affordability to improve.)

+ "Markets in prime central London are showing higher levels of activity and price growth. We expect this to continue into 2006, with a price rise of 5% next year."

(Two good years, will not necessarily be followed by a third one, in fact we should expect the opposite. The stock market and financial markets have shown strong gains in 2003-2005, allowing strong income growth and big bonuses in that sector. This helped maintain property prices in highend London in 2005, and may help in early 2006. But 2006 is also the year that the reliable 4-year stock market cycle is due to bottom, and so by the end of 2006, we may see a sharp selloff in financial markets, which would hurt the city. Thus, by year-end, we may see fewer financial jobs in London, and much smaller bonuses.)

+ "Our survey of residential towers indicates that there is a full supply pipeline to come to the market nationally, with a 60% increase in schemes under construction."

(This excess supply will require a RISE in demand, just to maintain prices. Savills is silent on where that increased demand is going to come from.)

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MY FORECAST for 2006?
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Ok, here goes:

London down 8% on the year. Uk as a whole down 6% for 2006.

Key Factors to watch for in 2006:
+ Credit tightening. If it arrives in Q1, the falls could be sharper.
+ Stock market crash. if it is sharp enough in Sept-Oct., or it starts earlier, the falls could be sharper
+ If we get little tightening and no slide in the stock market, the the fall may be less than 5%
+ An huge spike in energy prices, and a slide in the US dollar, if it comes, could force a rise in US dollar interest rates which may in turn force Sterling rates higher