Quarterly UK House Price Update

Now that Halifax and Nationwide have both published their quarterly house price data, I can update my graph of house prices vs. demographics. Incidentally, as you may have read, the ONS updated their census data too, so that is also reflected here with the data for the population of 40-42 year olds.

I stand by my assertion that it's demographics and population that determine the fundamentals of the economy and, if things pan out as the model is indicating, house prices in real terms are going to keep drifting down until 2015 - 2018. It's important to remember that the prices reported in the press are always going to be nominal, so I expect reported prices to stay fairly constant. Many people will assume that house prices are stable, or possibly even rising slowly, but once converted to real prices, the slow drift downwards will become apparent.

It's also important to remember how slowly the cycle of house price highs and lows moves. From the graph of UK prices (blue line), the time between the last peak and trough (1989 - 1996) was 7 years. In comparison to the recent house price peak in 2007, that looks like a small correction, so I cannot see the bottom of the market being achieved before 2015.

Another take away point from the graph above is that house prices are now the same as they were in 2003!

Here's another interesting graph of UK demographics (again using updated data from the 2011 census):

The dark blue and purple lines are UK house prices from Nationwide and Halifax respectively. The pale blue line is NI house prices. The most interesting line is the grey one. This is the population of 65 - 84 year olds. It was fairly stable until 2007, but from then on it steadily increases. I do not see this being supportive of either UK house prices or the wider economy and there are many who see this as a fundamental shift in the developed world. For more on this, see books such as Gray Dawn: How the coming age wave will transform America. And the world by Peter G. Peterson.

My suggestion for potential first time buyers is to patiently wait for the housing market to settle, bearing in mind this could be a few years yet. Following the money rules from earlier posts, you should be spending no more than 25% of your take-home pay on rent (ideally less) and saving as much as you can (at least 10% of take-home, if not 25% if you can manage it). You really want to be able to build a 20% deposit to secure a reasonable rate on a mortgage, ideally 25%.

Good luck!


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