Sharp Drop in London House Prices

Housing-Market / UK Housing Nov 28, 2007 - 07:28 PM GMT

The Land Registry reported a 0.1% rise in UK house prices during October, down from the average of 0.7% during the past 12 months and thus bringing the annualised rate down to 8.1%

However, house prices in London fell sharply by 0.6%. The fall was much greater than any other region and represented the first fall since mid 2005.

The Market Oracle forecast of 22nd August 2007 anticipated a sharper decline in London that elsewhere in the UK which now appears to be transpiring : The UK Housing market is expected to decline by at least 15% during the next 2 years. Despite the 2012 Olympics, London is expected to fall as much as 25%.

The reasons set out in the article for why London should fall further than the rest of the UK are now also coming forward in the mainstream media on the back today's news:The third impact of the credit crunch on the UK Housing market is the loss of 'city bonuses'. If as expected the financial markets remain depressed for at least the next quarter then the year end bonuses may virtually dry up. In the City of London many of the house purchases are reliant on bonuses to pay off capital as mortgages tend to be many, many times salaries. If the bonuses fail to materialize then that will depress London House prices which will send another negative ripple through the whole UK housing market.

The average house in London now stands at £351,039 or more than Ten Times average earnings. Whilst in the rest of England and Wales the average is £184,346 which is approaching 7 times earnings.

The Market Oracle UK House Price Affordability Index clearly illustrates the degree to which UK which house prices have reached unsustainable levels which primes the housing market for a serious correction during 2008 and 2009.

UK Housing Market Forecast for 2008-09 - As of 22nd August 2007

UK House Prices to fall by 15% over two years, falling prices to be accompanied by cuts in UK interest rates. (22nd Aug 07),

1st May 07 - UK Housing Market Heading for a Property Crash

25th Sep 07 - UK Housing Market on Brink of Price Crash - Media Lessons from 1989!

28th Oct 07 - UK House Prices - Primary Reasons For a Sharp Fall

10th Nov 07 - Crash in UK House Prices Forecast for April 2008 As Buy to Let Investors Sell on Capital Gains Tax Change

By Nadeem Walayat
Copyright (c) 2005-07 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.

Nadeem Walayat has over 20 years experience of analysing and trading the financial markets and is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication. We present in-depth analysis from over 100 experienced analysts on a range of views of the probable direction of the financial markets. Thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

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Comments

Charlotte L.
29 Nov 07, 05:25

London House Prices Up 100%

London house prices have risen by over 100% in recent years so even if house prices fell by the suggested 25%, they would still be up by a healthy 75% !

Nadeem_Walayat
29 Nov 07, 05:30

House Price % Drops are Greater When Falling

Hi Charlotte

You should be aware that house price % drops are greater when falling then when rising

I.e.

House original price £100,000

100% gain = £200,000

25% drop = £50,000

Therefore a 25% drop in London house prices means you have lost 50% of your gain and NOT 25%

Similarly a 15% drop is eqiuivalent to losing 30% of your gain.

Bill Smith
01 Apr 08, 19:53

House Prices

I acknowledge your point in relation to the percentage drops Nadeem but think it's also well worth looking at the statistics surrounding the number of houses available in London against the number of people looking to live there.

The whole time there is a greater demand over supply against the fact that there is such a shortage of land available to meet this demand (particuarly in Central London), I don't believe we will be in for the considerable falls predicted.

I think the credit crisis will undoubtably stall the market and I believe prices may well stagnate but it's my opinion that we will see an average of 4% growth over the next 5 years and that in 2013, London property prices (on average) will be 20% higher.

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