Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Inflation and the Crazy Crypto Markets - 23rd Oct 21
Easy PC Upgrades with Motherboard Combos - Overclockers UK Unboxing - MB, Memory and Ryzen 5600x CPU - 23rd Oct 21
Gold Mining Stocks Q3 2021 - 23rd Oct 21
Gold calmly continues cobbling its Handle, Miners lay in wait - 23rd Oct 21
US Economy Has Been in an Economic Depression Since 2008 - 22nd Oct 21
Extreme Ratios Point to Gold and Silver Price Readjustments - 22nd Oct 21
Bitcoin $100K or Ethereum $10K—which happens first? - 22nd Oct 21
This Isn’t Sci-Fi: How AI Is About To Disrupt This $11 Trillion Industry - 22nd Oct 21
Ravencoin RVN About to EXPLODE to NEW HIGHS! Last Chance to Buy Before it goes to the MOON! - 21st Oct 21
Stock Market Animal Spirits Returning - 21st Oct 21
Inflation Advances, and So Does Gold — Except That It Doesn’t - 21st Oct 21
Why A.I. Is About To Trigger The Next Great Medical Breakthrough - 21st Oct 21
Gold Price Slowly Going Nowhere - 20th Oct 21
Shocking Numbers Show Government Crowding Out Real Economy - 20th Oct 21
Crude Oil Is in the Fast Lane, But Where Is It Going? - 20th Oct 21
3 Tech Stocks That Could Change The World - 20th Oct 21
Best AI Tech Stocks ETF and Investment Trusts - 19th Oct 21
Gold Mining Stocks: Will Investors Dump the Laggards? - 19th Oct 21
The Most Exciting Medical Breakthrough Of The Decade? - 19th Oct 21
Prices Rising as New Dangers Point to Hard Assets - 19th Oct 21
It’s not just Copper; GYX indicated cyclical the whole time - 19th Oct 21
Chinese Tech Stocks CCP Paranoia, VIES - Variable Interest Entities - 19th Oct 21
Inflation Peaked Again, Right? - 19th Oct 21
Gold Stocks Bouncing Hard - 19th Oct 21
Stock Market New Intermediate Bottom Forming? - 19th Oct 21
Beware, Gold Bulls — That’s the Beginning of the End - 18th Oct 21
Gold Price Flag Suggests A Big Rally May Start Soon - 18th Oct 21
Inflation Or Deflation – End Result Is Still Depression - 18th Oct 21
A.I. Breakthrough Could Disrupt the $11 Trillion Medical Sector - 18th Oct 21
US Economy and Stock Market Addicted to Deficit Spending - 17th Oct 21
The Gold Price And Inflation - 17th Oct 21
Went Long the Crude Oil? Beware of the Headwinds Ahead… - 17th Oct 21
Watch These Next-gen Cloud Computing Stocks - 17th Oct 21
Overclockers UK Custom Built PC 1 YEAR Use Review Verdict - Does it Still Work? - 16th Oct 21
Altonville Mine Tours Maze at Alton Towers Scarefest 2021 - 16th Oct 21
How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
The Only way to Crush Inflation (not stocks) - 14th Oct 21
Why "Losses Are the Norm" in the Stock Market - 14th Oct 21
Sub Species Castle Maze at Alton Towers Scarefest 2021 - 14th Oct 21
Which Wallet is Best for Storing NFTs? - 14th Oct 21
Ailing UK Pound Has Global Effects - 14th Oct 21
How to Get 6 Years Life Out of Your Overclocked PC System, Optimum GPU, CPU and MB Performance - 13th Oct 21
The Demand Shock of 2022 - 12th Oct 21
4 Reasons Why NFTs Could Be The Future - 12th Oct 21
Crimex Silver: Murder Most Foul - 12th Oct 21
Bitcoin Rockets In Preparation For Liftoff To $100,000 - 12th Oct 21
INTEL Tech Stock to the MOON! INTC 2000 vs 2021 Market Bubble WARNING - 11th Oct 21
AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
Stock Market Wall of Worry Meets NFPs - 11th Oct 21
Stock Market Intermediate Correction Continues - 11th Oct 21
China / US Stock Markets Divergence - 10th Oct 21
Can US Save Taiwan From China? Taiwan Strait Naval Battle - PLA vs 7th Fleet War Game Simulation - 10th Oct 21
Gold Price Outlook: The Inflation Chasm Between Europe and the US - 10th Oct 21
US Real Estate ETFs React To Rising Housing Market Mortgage Interest Rates - 10th Oct 21
US China War over Taiwan Simulation 2021, Invasion Forecast - Who Will Win? - 9th Oct 21
When Will the Fed Taper? - 9th Oct 21
Dancing with Ghouls and Ghosts at Alton Towers Scarefest 2021 - 9th Oct 21
Stock Market FOMO Going into Crash Season - 8th Oct 21
Scan Computers - Custom Build PC 6 Months Later, Reliability, Issues, Quality of Tech Support Review - 8th Oct 21
Gold and Silver: Your Financial Main Battle Tanks - 8th Oct 21
How to handle the “Twin Crises” Evergrande and Debt Ceiling Threatening Stocks - 8th Oct 21
Why a Peak in US Home Prices May Be Approaching - 8th Oct 21
Alton Towers Scarefest is BACK! Post Pandemic Frights Begin, What it's Like to Enter Scarefest 2021 - 8th Oct 21
AJ Bell vs II Interactive Investor - Which Platform is Best for Buying US FAANG Stocks UK Investing - 7th Oct 21
Gold: Evergrande Investors' Savior - 7th Oct 21
Here's What Really Sets Interest Rates (Not Central Banks) - 7th Oct 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

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