"Sober" house price growth ahead, only 40% in real terms...

HAMISH_MCTAVISH

According to the upmarket estate agent, while inflation-adjusted house prices grew 68pc in the Noughties, prices will grow just 40pc in the next decade. This compares with -14pc in the 1990s, 43pc in the 1980s and 49pc in the 1970s.

"The Noughties will be remembered as a decade of polarisation – its legacy a residential market split, possibly irrevocable, between the equity haves and have-nots," Lucian Cook, director, Savills residential research, said.
The complications left by the last decade have emerged from the largest growth in house prices on record.

Pembrokeshire in Wales enjoyed the largest gain of 212pc during the Noughties, with the South East surprisingly lagging behind. In London, only Newham, one of the capital's poorest areas, featured in the top 10 risers.

The geographical variations were primarily for two reasons: first, some regions were playing catch-up on price rises in the South East during the late 1990s, and, second, the rise of the second-home buyers drove price growth in costal and popular holiday destinations.

Overall, the gains in the market were driven by low interest rates and strong wage growth up to 2005, and the increasing availability of mortgages in the run-up to 2007.

However, the substantial growth and impact of the financial crisis on mortgage lending, means that accessibility to home-ownership has been eroded.

Savills data shows that the deposit for a first-time buyer has risen from roughly 20pc of income in 2000 to almost 100pc by the end of 2009 – putting the equity-rich and prime regions in position to lead the market ahead of areas with high unemployment.

"A highly localised market recovery is now inevitable with a ripple effect rolling out from the prime markets of London and the South East," said Mr Cook.

http://www.telegraph.co.uk/finance/economics/houseprices/6928353/House-prices-face-decade-of-sobriety.html

Interesting, and balanced, article.

Although a bit pessimistic IMO given the staggering population growth projected, it raises valid concerns.

Still, a 40% gain in real terms over the next decade, versus a 68% gain for the last decade, and a 14% fall for the 90's, would be a good result considering the doom and gloom ramping over the last year.

And of course thats on top of the 10% gain this year already, so 50% in real terms, and more like 70% in nominal terms, in 11 years is fairly respectable I suppose.

Davesnave

"The Noughties will be remembered as a decade of polarisation – its legacy a residential market split, possibly irrevocable, between the equity haves and have-nots," Lucian Cook, director, Savills residential research, said.

'A[STRIKE] house[/STRIKE] nation divided against itself cannot stand.'

(Apologies to Jesus and Abe Lincoln)

HAMISH_MCTAVISH

Davesnave wrote: »

'A [STRIKE]house[/STRIKE] nation divided against itself cannot stand.'

(Apologies to Jesus and Abe Lincoln)

Not really.

The 70% or so in owner occupied housing will continue to prosper.

The 20% or so in social housing will continue living there with no impact.

The 10% in private rental will continue paying their landlords mortgage for them.

The crashaholics will miss their chance and continue moaning for the next decade.

Little change then, all in all.

Davesnave

HAMISH_MCTAVISH wrote: »

Little change then, all in all.

I see. So the guy from Savills is talking out of his fundament, then? Nothing to see here, move along.

The Protestants in N Ireland thought the status quo was fine and dandy too...

ukcarper

The figure I find interesting is 49% in 70s I bought in the early 70s and lending criteria was much tighter then and stayed that way through the 70s I believe. So can people explain 49% HPI.

Arch-Angel

I found an interesting quote from the same article:

From 2000 to 2008 the proportion of newly-built homes that were flats rose from just over 15pc to almost 50pc. In contrast, detached housing fell from 45pc to less than 15pc.

A feature of the bear argument is that only good homes are selling, which explains the average price rises. It's a fair argument; there's a large quantity of flats available on the market. I did have a counter-arguement...but I forgot it!

HAMISH_MCTAVISH wrote: »

Still, a 40% gain in real terms over the next decade, versus a 68% gain for the last decade, and a 14% fall for the 90's, would be a good result considering the doom and gloom ramping over the last year.

And of course thats on top of the 10% gain this year already, so 50% in real terms, and more like 70% in nominal terms, in 11 years is fairly respectable I suppose.

The basic truth about HPI is that it happens over time - as a rule, every home increases in value over a long period of time. It's the short term that we all argue about . You are right - 40% increase over 10 years is probably right; 4% a year is sustainable HPI. But, as I've argued before, if HPI happens "too fast, too soon" then we could see a second leg in a HPC.

nollag2006

Arch-Angel wrote: »

The basic truth about HPI is that it happens over time - as a rule, every home increases in value over a long period of time. It's the short term that we all argue about . You are right - 40% increase over 10 years is probably right; 4% a year is sustainable HPI. But, as I've argued before, if HPI happens "too fast, too soon" then we could see a second leg in a HPC.

Great post AA

I think all parties on here agree that YOY double digit price rises are unsustainable in the long term.

As Hamish pointed out a 40% increase in real terms would be welcomed by most in UK society

Yakubu22

Arch-Angel wrote: »

The basic truth about HPI is that it happens over time - as a rule, every home increases in value over a long period of time. It's the short term that we all argue about . You are right - 40% increase over 10 years is probably right; 4% a year is sustainable HPI. But, as I've argued before, if HPI happens "too fast, too soon" then we could see a second leg in a HPC.

But if the average wage only increases by 3% then a 4% HPI is not sustainable in the long term

Harry_Powell

Good to see that the indebted Hamish is still trying to talk up the market in order to save himself financially. A new decade, same old arguments, VI and personalities in the Housing/Economy forum.

N1AK

Arch-Angel wrote: »

You are right - 40% increase over 10 years is probably right; 4% a year is sustainable HPI.

I'm not so sure, 40% in real terms means £300,000 will be the average house price by 2020 (assuming relatively low, 2% inflation). During this period the average wage would have to do well to reach £30,000. Are house prices 10x the average wage really part of sustainable HPI?

I know the historical trends are pretty clear, house prices increase above the rate of inflation and 3-4% increases in real terms are the norm over the last 40 years; but I just don't see how prices can maintain this growth.

The reasons for house prices growing so quickly in the past may be varied, but perhaps a couple of changes could explain a lot of it:

1. Wage inflation has been high in the UK during the 1960s-1990s. Do we really see ourselves continueing to get richer in real terms at this same high rate.
2. 2nd incomes (especially decent ones) have become common in the last quater century increasing incomes for many households.

The only thing I can think of that could allow prices to grow in the way the above changes did, would be if parents financing their childrens house buying becomes standard practice. If anyone can think of another way that the teenagers of today would be able to afford debt 10x their income in 10 years time I'd love to hear it?

Arch-Angel

Yakubu22 wrote: »

But if the average wage only increases by 3% then a 4% HPI is not sustainable in the long term

Totally valid in principle - wage inflation and HPI does need to stay in some sort of alignment. If there's a 40% HPI over the next decade, but a 6% wage inflation over the next period (bit extreme I know) then the housing marking will have overheated and a crash is on the cards.

N1AK wrote: »

1. Wage inflation has been high in the UK during the 1960s-1990s. Do we really see ourselves continueing to get richer in real terms at this same high rate.
2. 2nd incomes (especially decent ones) have become common in the last quater century increasing incomes for many households.

Two very valid points and worthy of consideration. With the increased pressure on salaries and public expenditure, it's not unreasonable to expect a second bump down for house prices. Predicting when is the tricky part - the number of houses on the market in Mar/Apr will be the next indicator.