UK House Price Crash

Normally bullish sections of the media have been full of stories about the growing risk of a crash in UK house prices. Certainly looking at the price indexes it seems that the market has hit on boom times, strongly outperforming the trend for the last 10 years or so. The question on looking at these figures is if the market for housing has changed dramatically. While trends are in place that are bullish for the market: more single people are living alone, families are typically living in bigger and better accommodation, while available quality land for building new houses is not growing rapidly. Trends such as these are a force in the markets, demonstrated on the graph below by the red trend line. As you can probably tell, house prices have outperformed even this rising trend.

housepricesmarch2007.gif

(Graph shows Average Real House prices adjusted for inflation 1975-present)

The latest news (landlordexpert) on the property market is that an expected flood of houses is going to appear in the next month, before the new HIPs (Home Information Packs) are introduced on June 1. Now if you ask me, supply and demand economics mean that this extra pool of property hitting the market is going to dent the current rises. Whether or not is causes a sentiment shift from “House prices always go up” to “House prices are falling” remains to be seen, but the larger the bubble grows, the less force will be required to burst it.

House prices have always moved in cycles, boom followed by bust. The data strongly suggest that we’re nearer the boom than the bust of the current cycle. It’s interesting to note that the last property crash occurred at the same time as Margaret Thatcher resigned. In fact – after 7 years of price rises, the political uncertainty of the time was cited as a cause for the collapse. Is the same about to happen to Tony and Gordon?

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