Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
The Beatings Will Continue Until the Economy Improves - 6th Jul 20
The Corona Economic Depression Is Here - 6th Jul 20
Stock Market Short-term Peaking - 6th Jul 20
Gold’s Major Reversal to Create the “Handle” - 5th July 20
Gold Market Manipulation And The Federal Reserve - 5th July 20
Overclockers UK Custom Build PC Review - 1. Ordering / Stock Issues - 5th July 20
How to Bond With Your Budgie / Parakeet With Morning Song and Dance - 5th July 20
Silver Price Trend Forecast Summer 2020 - 3rd Jul 20
Silver Market Is at a Critical Juncture - 3rd Jul 20
Gold Stocks Breakout Not Confirmed Yet - 3rd Jul 20
Coronavirus Strikes Back. But Force Is Strong With Gold - 3rd Jul 20
Stock Market Russell 2000 Gaps Present Real Targets - 3rd Jul 20
Johnson & Johnson (JNJ) Big Pharma Stock for Machine Learning Life Extension Investing - 2nd Jul 20
All Eyes on Markets to Get a Refreshed Outlook - 2nd Jul 20
The Darkening Clouds on the Stock Market S&P 500 Horizon - 2nd Jul 20
US Fourth Turning Reaches Boiling Point as America Bends its Knee - 2nd Jul 20
After 2nd Quarter Economic Carnage, the Quest for Philippine Recovery - 2nd Jul 20
Gold Completes Another Washout Rotation – Here We Go - 2nd Jul 20
Roosevelt 2.0 and ‘here, hold my beer' - 2nd Jul 20
U.S. Dollar: When Almost Everyone Is Bearish... - 1st Jul 20
Politicians Prepare New Money Drops as US Dollar Weakens - 1st Jul 20
Gold Stocks Still Undervalued - 1st Jul 20
High Premiums in Physical Gold Market: Scam or Supply Crisis? - 1st Jul 20
US Stock Markets Enter Parabolic Price Move - 1st Jul 20
In The Year 2025 If Fiat Currency Can Survive - 30th Jun 20
Gold Likes the IMF Predicting a Deeper Recession - 30th Jun 20
Silver Is Still Cheap For Now - 30th Jun 20
More Stock Market Selling Ahead - 30th Jun 20
Trending Ecommerce Sites in 2020 - 30th Jun 20
Stock Market S&P 500 Approaching the Precipice - 29th Jun 20
APPLE Tech Stock for Investing to Profit from the Machine Learning Mega trend - 29th Jun 20
Student / Gamer Custom System Build June 2020 Proving Impossible - Overclockers UK - 29th Jun 20
US Dollar with Ney and Gann Angles - 29th Jun 20
Europe's Banking Sector: When (and Why) the Rout Really Began - 29th Jun 20
Will People Accept Rampant Inflation? Hell, No! - 29th Jun 20
Gold & Silver Begin The Move To New All-Time Highs - 29th Jun 20
US Stock Market Enters Parabolic Price Move – Be Prepared - 29th Jun 20
Meet BlackRock, the New Great Vampire Squid - 28th Jun 20
Stock Market S&P 500 Approaching a Defining Moment - 28th Jun 20
U.S. Long Bond: Let's Review the "Upward Point of Exhaustion" - 27th Jun 20
Gold, Copper and Silver are Must-own Metals - 27th Jun 20
Why People Have Always Held Gold - 27th Jun 20
Crude Oil Price Meets Key Resistance - 27th Jun 20
INTEL x86 Chip Giant Stock Targets Artificial Intelligence and Quantum Computing for 2020's Growth - 25th Jun 20
Gold’s Long-term Turning Point is Here - 25th Jun 20
Hainan’s ASEAN Future and Dark Clouds Over Hong Kong - 25th Jun 20
Silver Price Trend Analysis - 24th Jun 20
A Stealth Stocks Double Dip or Bear Market Has Started - 24th Jun 20
Trillion-dollar US infrastructure plan will draw in plenty of metal - 24th Jun 20
WARNING: The U.S. Banking System ISN’T as Strong as Advertised - 24th Jun 20
All That Glitters When the World Jitters is Probably Gold - 24th Jun 20
Making Sense of Crude Oil Price Narrow Trading Range - 23rd Jun 20
Elon Musk Mocks Nikola Motors as “Dumb.” Is He Right? - 23rd Jun 20
MICROSOFT Transforming from PC Software to Cloud Services AI, Deep Learning Giant - 23rd Jun 20
Stock Market Decline Resumes - 22nd Jun 20
Excellent Silver Seasonal Buying Opportunity Lies Directly Ahead - 22nd Jun 20
Where is the US Dollar trend headed ? - 22nd Jun 20
Most Shoppers have Stopped Following Supermarket Arrows, is Coughing the New Racism? - 22nd Jun 20

Market Oracle FREE Newsletter

AI Stocks 2020-2035 15 Year Trend Forecast

Why UK House prices continue to rise !

Housing-Market / UK Housing Oct 14, 2006 - 07:52 PM GMT

By: Nadeem_Walayat

Housing-Market

For how many years have the market commentators been predicting a UK housing crash ? 1 year, 2 years, 5 years ? Yes in some cases even 5 years ago market pundits have been calling a crash, but in the meantime house prices, to this very day continue to rise ever higher !

Why ?

Here are four reasons as to why house prices in the UK continue to rise

Why UK House prices continue to rise !


1. Average Earnings / House prices & Interest Rates
Traditionally, average earnings and house prices have been taken together to produce an affordability ratio, this ratio has clearly in recent years shown itself to be flawed ! Fundamentally flawed. In that the ratio ignored historically low interest rates as a function of earnings and house prices. A more accurate indicator would need to include interest rates, and therefore MarketOracle has constructed a new house price to earnings ratio which includes interest rates.

The indicator accurately shows why house prices have continued to rise, as they are no where near the un affordability of the early 1990's, off course the index could be extended to include other variables, such as the level of new build construction, growth in households, employment levels etc. So as to fine-tune the trend. But basically in a simple 3 variable chart the MarketOracle House price ratio is able to explain that house prices ARE still affordable and thus the primary reason why they continue to increase.

The chart shows why 2001 was a great time to buy as world interest rates plummet, whilst IN 2001 there were countless economists suggesting that UK house prices were over valued and expensive ! When infract they were at their most affordable level in a generation, and sparked a surge in house price growth.

Presently house prices are at the upper end of the range, which does suggest slower house price growth in the forseable future unless interest rates fall.

An interest rate rise to say 5.25% would put the index at 28, which would take house prices beyond the recent range, but still this is far lower than the high of the early 1990's

2. UK Money Supply
With the UK money supply running at the rate of 13%, its no wonder the housing market continues to defy gravity and chug along the highs. This excess supply of money is causing inflation , its called house price inflation and effectively devaluing the value of your £.

The worlds ultimate hedge against inflation is Gold, and in gold terms the price of Houses have actually fallen over he last few years as inflation reappears onto the scene. In Jan 2005 the price of an average house was £150,000 the price of gold in sterling was £204. Therefore average houses were valued in 735 ounces of gold. Today with gold at £317 and average house prices at £170000, the average house is worth 536 ounces of gold, a fall of 28% !!! So far this fact has had no effect on the UK consumer.

3. The UK Economy
Is a significant factor in the continuing uptrend in UK house prices, the strength of the UK economy which continues to deliver year on year economic growth and wealth, this is an important contributing factor to the growth in house prices as the money earned is invariably plowed back into the housing market.

4.Immigration
As a consequence of recent EU expansion, strong economy and liberal employment laws. There has been a large influx of migrant Labour in excess of 600,000 from the Accession States, this has supported the continuing demand for properties in the buy to let market.

Conclusion
House prices will continue to be supported along the highs and maybe drift higher as long as the situation remains positive with regards all of the four above factors. Even a rise in interest rates to 5.25% is unlikely to effect the situation significantly. It would require an interest rate hike to above 6% before we are likely to witness a significant house price decline, as that would put the index far above the current range.

Nadeem Walayat

(c) MarketOracle.co.uk 2005-2006

Disclaimer - This Analysis / Forecast / Trade Scenerio is provided for general information purposes only and not a solicitation or recommendation to enter into any market position, and you are reminded to seek independent professional advice before entering into any investments or trading positions.
The Market Oracle is a FREE Financial Markets Forecasting & Analysis online publication. We aim to cut through the noise cluttering traditional sources of market analysis and get to the key points of where the markets are at and where they are expected to move to next
! http://www.marketoracle.co.uk

This article maybe reproduced if reprinted in its entirety with links to http://www.marketoracle.co.uk


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments


30 Oct 06, 03:29
Re: Why UK House prices continue to rise !
What about the £trillion of debt ?

UK unemployment, inflation, mortgage interest rates and and consumer debt are increasing. Other countries that had similar house price explosions haven't recovered from the burst in their bubble (Holland, Japan, Australia).

The crash was already supposed to happen. It's been delayed because:

- UK opened it's immigration doors to the rest of Europe causing skilled middle-upper class professionals to come to London.

- Way too many buy to let amateurs on the market driving up prices at unsunstainable levels. It's only when these amateurs exit the market (as a result of realising there is no more money to be made, and would be better off investing in other asset classes, ie stocks) that the house crash will be triggered.

- Money has been cheap for far too long. People in our generation can only relate to interest rates being in the 4-6 % region. Your parents will be able to tell you how interest rates used to be closer to 20% in their time. Well, interest rates are on the rise.

You can only delay the inevitable for so long
Chethan
11 Aug 08, 01:53
Market Realisation

Hi,

How does this housing market crash can effect on the profesional students from respectable University in their job terms.

Does not the boom(expected)commercial sector balance the UK Real Estate market.

Does not this effect other complementary industries like Steel, Cement, Granite etc

Is Government looking for any remedies to recover from this crisis

I believe the solution for this would be encouraging the hiring of professional students who are from reputed universities who can pool new ideas and thoughts and companies should support the ideas by executing them.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules