What do you want to happen to house prices? 

What do you want to happen to house prices? Amid the reams of data produced and words written on the property market, this is a question that rarely gets pondered.

The past month has produced an even greater wave of house price reports for us to cover than usual, as we came not just to the end of a year but also a decade.

That makes it a time for both looking back and dusting off dodgy crystal balls to peer into the future.

Yet opinions on what might be the best course for house prices over the coming years were few and far between.

What next for house prices? The average property value has soared above inflation and wages since the early 1990s, with Nationwide’s figures showing a rise from £50,000 to £215,000

There also tends to be little consideration of how the ghosts of house prices past, present and future, interact with inflation and even more importantly wages.

Asked the question I posed at the start, my answer would be that the best thing that could happen over the next decade would be for homes to get less expensive, preferably through house prices stagnating and wages rising.

My preference would be for Britain’s property market to look less like a high stakes lottery in future and more like a place you could sensibly plan to move home when you needed to.

How we achieve that is a big question, but house prices are largely driven by credit so ultimately controlling that is important.

The past decade was one where house price inflation was the second lowest in those of the past 40 years, Nationwide Building Society highlighted this week.

The average UK house price rose 33 per cent in the 2010s, compared to 117 per cent in the 2000s and 180 per cent in the 1980s, although the rise outstripped the 1990s – a decade when Britain’s last prolonged property market crash saw the average property value climb just 21 per cent.

How the past decade of house price rises across the UK compared to previous periods, according to Nationwide's house price figures

How the past decade of house price rises across the UK compared to previous periods, according to Nationwide’s house price figures 

Yet, in an honourable exception to the usual convenient ignoring of inflation and wages, Nationwide pointed out that homes still got more expensive in relative terms in the 2010s.

That 33 per cent house price rise may have only equated to a 2.85 per cent annual average but it still outstripped wages, which climbed about 20 per cent, according to Nationwide, and consumer prices inflation of about 21 per cent, based on most recent ONS figures.

And the bad news is that we started this decade of house price-watching from a point where homes were already expensive.

The long-run average ratio of house prices to wages is about 4.4, according to the chart produced by Nationwide each month.

Even after the financial crisis falls in property prices, in 2010 that ratio stood at about 5.4 and today it is at about 6.4.

Of course, being a national average this fails to properly represent what real people experience in their local property markets.

In London, for example, the average house price is up 66 per cent over the past decade, whereas in the North it is up 11 per cent and in Northern Ireland there has been a mere 2 per cent rise, according to Nationwide’s figures.

Nonetheless, reports that drill down into affordability suggest that even in those places where house prices have not posted much in the way of gains over the past decade, homes remain expensive by historic standards when compared to wages.

Although the past decade saw relatively modest house price inflation compare to the previous one and the 1980s, homes continued to get relatively more expensive.

Although the past decade saw relatively modest house price inflation compare to the previous one and the 1980s, homes continued to get relatively more expensive.

Off the back of a decade of comparatively low property inflation, some may expect the next decade to produce sizeable gains.

There’s already been plenty of fervent pundit talk about a Boris Bounce and a market buoyed by the certainty of Brexit.

Halifax released figures yesterday showing a £4,000 jump in the average house price in December, something some excited commentators pegged on an election result boost.

For that to have shown up after December 13th, on an index that measures mortgage approvals, would be quite something, so I’d be more inclined to question the reliability of the bank’s figures.

Moreover, for all the chatter about buyers and sellers coming out of the woodwork thanks to greater political certainty, the actual forecasts for the year ahead are pretty downbeat.

They range from a slight falls to very modest rises of about 2 per cent. 

That reflects that it’s low mortgage rates keeping the boat afloat and that once we leave the EU on 31 January, we will spend much of 2020 concerned by the Brexit trade talks deadline at the end of the year.

Any potential sellers thinking they can now get top whack for their home should bear that in mind.

And we should all remember that what’s more important than making a paper profit on your home is being able to move if you want to.

High house prices tend to thwart that because while you might get more for yours, the one you are buying will be even more expensive.

So, if your answer to the question at the top of this column was ‘I want house prices to go up lots’, be careful what you wish for.

Bank of England paper on house prices vs credit 

A Bank of England paper looking at the past four decades of house price inflation and what has driven it written by David Miles and Victoria Monro was released before Christmas.

It looked at the relationship between house prices and credit and argued that the declining cost of borrowing had played a major part in long-term property inflation. 

It said: ‘Real house prices in the UK have almost quadrupled over the past 40 years, substantially outpacing real income growth. 

‘Meanwhile, rental yields have been trending downwards — particularly since the mid‑90s. This paper reconciles these observations by analysing the contributions of the drivers of house prices. 

It shows that the rise in house prices relative to incomes between 1985 and 2018 can be more than accounted for by the substantial decline in the real risk‑free interest rate observed over the period.’

> Bank of England working paper on UK house prices 



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