- British author, Fred Harrison, is famous for his 18-year property cycle theory
- He correctly forecast the last two house price crashes years in advance
- Now he is saying prices will rise by around 20% before a major crash in 2026
The house price prophet who predicted the last two property crashes years before they happened has warned of another impending boom and bust on the horizon.
Fred Harrison, a British author and economic commentator famous for his theory of an 18-year property cycle, is predicting turbulent years ahead for the housing market.
Speaking to This is Money, Harrison said house prices are about to boom once more.
He expects the average UK house price to rise by around 20 per cent between now and the end of 2026.
However, Harrison is then expecting a big crash to take place, with any gains made over the next two-and-a-half years wiped out entirely.
He believes Covid-19 caused house prices to rise higher and faster than they would have otherwise done.
That is due to factors such as the 2021 stamp duty land tax holiday inflating property prices, as many sellers simply added extra to the asking price of their homes.
The pandemic also caused a flurry of property transactions as many buyers sought homes they could work from comfortably, or with gardens.
The past year or so of house price dips has merely been a recalibration, Harrison says – and now the housing market is ready to continue its upwards trajectory.
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‘Prices are not dropping,’ says Harrison, ‘they are adjusting back on to the long-term upward trend, after the pandemic induced boom.
‘They will continue to glide upwards to the end of 2026.
‘Between now and then house prices will begin to rocket, and if history repeats itself then the rise will equate to 20 per cent or so above current levels.’
Harrison is expecting politics to provide the fuel to send house prices hurtling higher – both here and in the US.
‘The general elections in the UK, reinforced by the presidential election in the USA, will ensure benign policies for house prices,’ he says.
‘Politicians will do their utmost to accommodate property owners. In the UK, all political parties have fine-tuned their policies so as not to damage the prospect of the coming boom.
‘If Donald Trump wins in November, major tax cuts will quickly follow. Those cuts will be capitalised into home prices.
‘This will help to elevate confidence in global markets, giving a further push to property prices.’
‘As with the financial crisis in 2008, following the peak in 2007, it will end in tears.’
Harrison is also adamant that mortgage rates will likely continue to fall, which will encourage investors, first-time buyers and home movers to push forward with plans.
‘Mortgage rates will go down’
Mortgage rates have broadly been on a downward trajectory since August when rates peaked – and this is a trend that Harrison believes will continue.
He says: ‘Treasuries on both sides of the Atlantic will do their utmost to keep interest rates on a downward trend. That will further reinforce the rise in house prices.’
He adds: ‘A Labour Government would push for an increase in construction, which will persuade people that all is well in the property markets.
‘So more people will take out the forever 40-year mortgages with a growing sense that prices are heading in the right direction. In a rising market people will borrow at whatever interest rate.’
But with every boom, there must eventually come a bust.
Harrison is almost certain that this will come in late 2026 – and the only potential obstacle that could upset his timeline is war.
He says: ‘The crash in house prices is slated for 2026 – subject to no further military adventures in the Middle East and assuming Putin does not provoke Nato in Europe.’
‘President Xi threatens to retake Taiwan in 2027, but house prices will have peaked by then, anyway.’
He believes the next downturn could eclipse any house crash we have seen in the past.
He explains: ‘The economic crash will cause the convergence of the existential crises threatening our globalised society.
‘If my worst fears are realised, there is no telling where the bottom will be in the housing market.’
So should you trust Fred Harrison?
Forecasting future house prices is a difficult business. Many have tried and failed in the past.
But while Harrison’s views may seem far fetched to some people, he does have an uncanny knack for predicting house price crashes.
In his book, The Power in the Land, published in 1983, Harrison correctly forecast property prices would peak in 1989, as well as the recession that followed it.
In 2005, he published Boom Bust: House Prices, Banking and the Depression of 2010, in which he successfully forecast the 2007 peak in house prices and ensuing depression.
According to Harrison, he had already predicted the 2008 crash at least a decade before.
When This is Money spoke to Harrison in 2021 he told us that he warned the then-Labour Government of the 2008 crash in 1997.
Harrison says he has sent a similar message to current Labour leader Keir Starmer, in expectation that Labour will be victorious in the upcoming general election. However, he expects his advice will not be heeded once again.
He adds: ‘I have written to Keir Starmer, to alert him to the prospects. Does he really want Labour to take the blame for another economic crash? Not surprisingly, the response was non-committal.’
‘That was a repeat performance of my attempts to warn Tony Blair and Gordon Brown, when they entered Downing Street in 1997.
‘I wrote to warn them that they had 10 years to ring-fence the UK economy against the crash that would follow the peak in house prices in 2007. They did nothing.’
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- Available homes for sale over 20% higher than a year ago
- Demand up 12% year-on-year, led by London and the East
- One in five sellers accepting 10%+ below asking price to secure a sale
House prices fell slightly in the year to December, but the property market is now heating up on the back of falling mortgage rates according to Zoopla.
The property portal said prices fell by 0.8 per cent in the 12 months to the end of December, but more buyers and sellers were now entering the fray and an increasing number of homes were going under offer.
The month before, property prices fell by 1.2 per cent compared to a year before.
Zoopla also revealed the number of sales agreed is 13 per cent higher than last year and higher across all countries and regions.
It said buyer demand is 12 per cent higher than a year ago, though it remains 13 per cent below the five-year average.
More homes are also hitting the market, according to the property website. The number of available homes is up 22 per cent on this time last year.
The average estate agent has 28 homes for sale, which is double the low point recorded in late 2022, when there were just 14 homes per estate agent.
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It’s still a buyer’s market
Despite the positive start to the year, it remains a buyer’s market, according to Zoopla.
It says a fifth of sellers are still accepting more than 10 per cent below the asking price to secure a sale. This is close to one in four across London and the South East.
Richard Donnell, executive director at Zoopla said the key trend over 2023 was sellers cutting asking prices to attract buyer interest. He said this has continued into 2024.
‘It’s a positive start to the year with all key measures of housing activity higher than a year ago,’ said Donnell.
‘The fall in mortgage rates has led to a rebound in buyer demand and sales following a weaker second half of 2023 when many movers put decisions on hold.
He added: ‘This improvement in activity will support sales volumes which, at one million, reached an eleven year low in 2023.’
‘We don’t see these trends as a precursor to higher prices in 2024 as it remains a buyer’s market.
‘Sellers looking to move should be encouraged by these early signals of activity but buyers remain price sensitive and focused on value for money.
‘Over-optimism by sellers could quickly stall the current improvement in market activity.’
Will prices fall in 2024?
Zoopla revealed that house price falls were greatest in the East of England, where prices fell by 2.5 per cent in 2023.
Meanwhile, house prices went up across Scotland, Northern Ireland and the North of England.
Looking ahead, it suggests higher levels of sales activity in early 2024, following on from the final weeks of 2023, are evidence of greater alignment between buyers and sellers on pricing.
For that reason, analysts at Zoopla argue that house prices will not fall much further.
Earlier this month, the property firm Knight Frank forecast that house prices will rise 3 per cent this year having only three months earlier predicted a 4 per cent fall by the end of 2024.
Anthony Codling, head of European housing and building materials for investment bank RBC Capital Markets said: ‘With rising wages, falling inflation, falling mortgage rates, and increasing talk of election related housing stimulus packages we expect house prices to rise in 2024.’
Tom Ashwood, managing director at London agent Tom Ashwood Real Estate says: ‘I feel the increase in buyer activity that has initially been fuelled by a reduction in mortgage rates and a lack of intent to buy through 2023 will assist in keeping asking prices fairly stable through the initial part of 2024, which will lead to more property being listed for sale.
‘If interest rates remain at a stable level and the appetite remains, we may even see an increase in house price inflation this year, particularly through the good selling time we tend to see between the Spring and Summer months.’
London market looking more affordable?
London has led the rebound in new buyer demand, up 21 per cent on this time last year.
This is perhaps because housing affordability in London is the best it has been since 2014, according to Zoopla, mainly thanks to stagnant prices and rising wages.
London house prices have risen just 13 per cent since 2016, according to Zoopla, compared to 34 per cent at a UK level.
The affordability of homes in London – as measured by a simple price-to-earnings ratio – is at its lowest since 2014.
However, London remains expensive compared to the UK average with house prices standing at 13 times earnings, down from a high of over 15 times earnings in 2016.
Zoopla’s Richard Donnell adds: ‘In London, this increased demand is evident across the market, with inner and outer London, alongside core commuter areas all registering increased demand for homes.
‘This may be an early sign that the tide is turning for the London sales market after seven years of lacklustre activity compared to the rest of the UK.’
Matt Thompson, head of sales at London estate agent Chestertons, adds: ‘2024 started with a busy property market as buyers have been motivated to either commence or finalise their property search.
‘The increasing availability of more affordable mortgage deals thereby plays a key role and will likely continue to fuel a surge in buyer activity over the coming weeks.’
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