Are house prices finally on their way down?
September 2, 2007Thanks for visiting! If you like what you're reading, you may want to subscribe to my RSS feed.
I’ve been eagerly watching the house price inflation and several house price indices for the past months. I strongly belive that the market is currently immensely overvalued and will have to face a correction at some point in the near future. How soon this will happen is not necessarily clear and for the sake of stability I’m hoping that we won’t see an actual crash but a slow downturn.
According to some sources we would have to see a 50% fall in house prices over the next few years to restore the long term average. This figure even exceeds the 30% decrease in property value the UK experienced in the early nineties and hence seems a little too pessimistic. On the other hand, countries like Japan have shown how easily a bubble like this can burst - after years of recession house prices are still below their 1990 average! If the same scenario was to happen to the UK the average house would cost £70,000 instead of £180,000 (£340,000 in London).
According to the latest figures released by the Landregistry we are certainly seeing a slow-down in growth - which is hopefully a start for more reasonable and hence affordable property prices. With an increase of only 0.1% in July it is not entirely unreasonable to assume that we’ve reached a price plateau. In fact, London is probably the number one factor why we are still experiencing a positive house price inflation. While the countrywide annual inflation currently stands at 8.8%, London tops the list with a 15.5% inflation since July 2006.
This inevitably leads to first-time buyers struggling to get onto the property ladder and choosing to rent instead. According to the Royal Institution of Chartered Surveyors (RICS) first-time sales are tumbling at their fastest rate in more than three years. Countrywide the number of sales transactions has decreased by almost 10% in the last year only, but at the same time the price tags of the sales exceeded the £2,000,000 mark much more often. Sales of less than £250,000 decreased by nearly 25%, which is probably the first-time sales we’re looking for.
If you want to dig even further into the details, Cliff @ Fool.co.uk provides a good overview of the London boroughs that have experienced a decrease in house prices so far. He breaks it down by property type (flat vs. terraced vs. semi-detached etc.), which should give you a good idea of where to not buy at the moment if you know what you’re looking for.
Further, Ed @ Fool.co.uk supports my view that a fall in house prices is simply a matter of time by now. He discusses topics like the subprime mortgage crisis in the US and it’s likely impact on the UK market (a hypothesis supported by this ABN Amro paper) as well as some other macroeconomic points that are worth considering.
If you think this is all far too serious, you should definitely watch this.
Cliff @ Fool.co.uk does provide a good overview thanks, I
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City of Westminster | September 4, 2007 | 12:04 pm
Cliff @ Fool.co.uk does provide a good overview thanks, I am suprised that the City of Westminster is had such huge fall!
There were only 5 recorded sales for the City of
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Kirsten | September 4, 2007 | 12:31 pm
There were only 5 recorded sales for the City of Westminster, which could be an explanation for this large drop. Statistically speaking, the sample isn’t representative for the actual price movement… while the average price could certainly have fallen, it is unlikely that the actual decrease was this significant.