Predictions 2022 – an interview with Simon Shinerock…

Simon: I think it was much easier to predict what was likely to happen back then thanks to the actions of governments and central banks that used massive stimulus to keep their economies from collapsing.

There was a lot of speculation at the start of the pandemic about what would happen to the real estate market. The consensus at the time seemed to be that there would be a price crash. I openly expressed the opposite opinion.

Peta: It seems to me (even if you minimize your forecasts) that you would be a very good candidate to propose a general real estate forecast for 2022? Obviously, it’s far from easy – and it probably has the effect of putting your neck on the line a bit. But I think people would be interested to hear your thoughts?

Simon: As we emerge from the pandemic, the crystal ball is much murkier. The actions taken previously having now been withdrawn, it is much more difficult to say what will happen, due to several destabilizing and difficult to predict factors.

It’s tempting to say that things will just reverse, with winners becoming losers and losers becoming winners (think Amazon vs easyJet). However, while there will be a bit of that, I don’t think it will be that simple. There are many unknowns and many threats right now.

But if I had to make an overall prediction, I would say that over the next two years, after a period of turbulence, inflation will slow, interest rates will stabilize and there will be an unprecedented global economic boom.

Peta: Given the turbulent times you anticipate then: what do you see happening to property prices in 2022?

The main driver of real estate prices is the interest rate. The lower they are, the cheaper mortgages become. At the ultra-low levels we’ve seen lately, even at relatively higher rates, affordability has skyrocketed.

Demand was only kept in check by restricting the money supply, achieved by capping affordability, which means insisting on mortgage repayments as opposed to interest only, which means higher repayments, by asking for large deposits and limiting mortgages to a maximum percentage of income.

Despite these measures, prices were gradually increasing in many places even before the pandemic, as people gradually gained confidence and exploited all possible means to borrow more money (or get some from their parents)!

What triggered the pandemic boom were the government’s attempts to stimulate the market with the previously mentioned stamp duty cuts, which were taken as a signal to relax the money supply – and go for it.

Once a boom is underway, it tends to continue well beyond the point of reason, which is why booms lead to busts. Since the global financial crisis, economic policy has aimed to dampen these cycles, which can hurt long-term growth.

The pandemic response has essentially thrown these policies out the window – and so dealing with the consequences is now a big challenge.

As the global economy restarts and the pandemic recedes (hopefully permanently, though it will certainly cast a shadow for some time); we are seeing high demand-driven inflation. The important thing is to understand why this is happening and whether it will continue or not. The reason this is important is because if we have runaway inflation; interest rates will rise further and faster, increasing the likelihood of a house price crash.

Peta: You predicted a slowdown in inflation rates earlier, so you would likely consider the above scenario extremely unlikely?

Simon: I highly doubt that we will experience runaway inflation. During the pandemic, people’s consumption patterns shifted from services like vacations, dining out, and entertainment they didn’t have access to, to goods they could (albeit at initially lower levels ).

The reason for the current inflation is that people have increased their spending on goods before supply chains have had a chance to rebuild (plus, services like travel are only just becoming available again). This has, to some extent, been fueled by the housing boom – as people spend more money when they move.

People have also saved a lot of money during the pandemic that they are now able to spend, further increasing demand.

Peta: How long do you think this request will last?

Simon: Demand-driven inflation is expected to be temporary as services come back online and people resume vacations, entertainment, etc. Demand for goods is therefore expected to fall just as factories have opened their supply lines and rebuilt capacity. This will create downward pressure on prices – and I think inflation will start to come down quickly.

Because of this dynamic, I don’t think interest rates will skyrocket unless wages start rising rapidly, which would increase the money supply and contribute to higher inflation for longer. The danger here would be “stagflation”, where prices go up without any economic growth. The worst of all worlds. A little real wage growth is okay, though — and provided it’s not too much, it would likely lead to the realization of my prediction: a post-pandemic boom.

There are, however, other factors that could have a significant effect, such as growing tensions in Europe with Russia. There is more political instability today than at any time that I can remember.

We also have a lot of uncertainty about what the government will do with the private rental sector. If they introduce the wrong kind of regulation, it could have a devastating effect on the market. It’s already arrived.

Based on a combination of history, common sense and experience; Rent control should be avoided like the plague. Despite this, there is a growing demand for their reintroduction. If that happens, it will likely be over for the rental industry as we know it.

Besides this threat, there is also the huge housing shortage. It’s hard to see how the destruction of the rental sector will do anything but make the situation worse.

So, in summary, it is much more difficult to predict the next two years than the last two years when it comes to the overall market, because it all depends on what the politicians decide to do.

With a focus on societal change, have we seen the long-term demise of city centers and a permanent shift to life outside the city, due to changing working lives?

Again, many people made very bleak predictions about the future of our downtowns. Admittedly, they have not seen the benefit of the price increases seen elsewhere. Has the balance of power shifted towards a labor force that is increasingly in demand? Will employers be forced to give in to their demands for more freedom and a better work-life balance? Will the post-pandemic environment see the leveling promised by politicians, elites and non-elites living side by side in the countryside?

The scope of these questions is vast, could easily result in many books (and probably will), so a synopsis of a few lines will inevitably have a host of limitations. However, never one to shy away from a challenge, here are my distilled thoughts, which could be considered predictions.

There is no doubt that technology is driving social change; but if that change happens too quickly (and it does), there will always be an unexpected reaction. For example, the current labor advantage in the UK is likely to be short-lived, as employers realize that they can often find better educated, more determined and cheaper remote workers elsewhere. Technology and in particular automation are also increasingly replacing people, often with much greater efficiency. We are only in the foothills of this mountain.

Finally, the end result of these changes will be that city centers thrive, not wither, as they focus on culture and entertainment rather than work. Thus, they become even more attractive to the elite who can afford to live there.

Interestingly, London’s subprime and prime markets were suffering anyway for years before the pandemic due to a combination of penal taxes and oversupply. Ironically, the social changes we are going through, far from accentuating this trend, are, in my opinion, likely to reverse it.

At the start of the pandemic, I predicted that it would accelerate social change – and it is. But as with all cycles, the change is going too far too fast and will most likely overshoot before retracting (but not where we were before).

However, the pandemic has, in my view, also disguised what I see as the main underlying driver of social change, namely automation. Looking a little further down the road, I think it will be automation that will bring the biggest change to society and the way we live and work.