Best of the Week
Most Popular
1. Five Charts That Show We Are on the Brink of an Unthinkable Financial Crisis- John_Mauldin
2.Bitcoin Parabolic Mania - Zeal_LLC
3.Bitcoin Doesn’t Exist – 2 - Raul_I_Meijer
4.Best Time / Month of Year to BUY a USED Car is DECEMBER, UK Analysis - Nadeem_Walayat
5.Labour Sheffield City Council Election Panic Could Prompt Suspension of Tree Felling's Private Security - N_Walayat
6.War on Gold Intensifies: It Betrays the Elitists’ Panic and Augurs Their Coming Defeat Part2 - Stewart_Dougherty
7.How High Will Gold Go? - Harry_Dent
8.Bitcoin Doesn’t Exist – Forks and Mad Max - Raul_I_Meijer
9.UK Stagflation Risk As Inflation Hits 3.1% and House Prices Fall - GoldCore
10.New EU Rules For Cross-Border Cash, Gold Bullion Movements - GoldCore
Last 7 days
Why Banks Will Be Slammed In The Next Crisis—And That May Be Good News - 23rd Jan 18
Medicare Premiums Are A Shared Pool - Coming Changes That Will Transform Retirement - 23rd Jan 18
Charged Atmosphere of Heavy Police and Security Presence at Sheffield Street Tree Felling Protests - 23rd Jan 18
Pension Crisis And Deficit of £2.6 Billion At Carillion To Impact UK - 22nd Jan 18
Two Factors for Gold That You Don’t Want to Miss - 22nd Jan 18
Why You Must Own Silver in 2018 - 22nd Jan 18
This Could Be The Hottest Mining Stock Of 2018 - 22nd Jan 18
Stock Index Trend Trade Setups for the SP500 & NASDAQ - 22nd Jan 18
Stock Market Deceleration / Distribution - 22nd Jan 18
US Markets vs Govt Shutdown: Stock Markets at all time highs - 22nd Jan 18
Land Rover Discovery Sport - 1 Month Driving Test Review - 22nd Jan 18
Why should you use high-quality YouTube to mp3 converter? - 22nd Jan 18
Silver As Strategic Metal: Why Its Price Will Soar - 21st Jan 18
Stocks, Gold and Interest Rates Three Amigos Ride On - 21st Jan 18
Why Sometimes, "Beating the S&P 500" Isn't Good Enough - 21st Jan 18
Bunnies and Geckos of Sheffield Street Tree Fellings Protests Explained - 21st Jan 18
Jim Rickards: Next Financial Panic Will Be the Biggest of All, with Only One Place to Turn… - 20th Jan 18
Macro Trend Changes for Gold in 2018 and Beyond - Empire Club of Canada - 20th Jan 18
Top 5 Trader Information Sources for Timely, Successful Investing - 20th Jan 18
Bond Market Bear Creating Gold Bull Market - 19th Jan 18
Gold Stocks GDX $25 Breakout on Earnings - 19th Jan 18
SPX is Higher But No Breakout - 19th Jan 18
Game Changer for Bitcoin - 19th Jan 18
Upside Risk for Gold in 2018 - 19th Jan 18
Money Minute - A 60-second snapshot of the UK Economy - 19th Jan 18
Discovery Sport Real MPG Fuel Economy Vs Land Rover 53.3 MPG Sales Pitch - 19th Jan 18
For Americans Buying Gold and Silver: Still a Big U.S. Pricing Advantage - 19th Jan 18
5 Maps And Charts That Predict Geopolitical Trends In 2018 - 19th Jan 18
North Korean Quagmire: Part 2. Bombing, Nuclear Threats, and Resolution - 19th Jan 18
Complete Guide On Forex Trading Market - 19th Jan 18
Bitcoin Crash Sees Flight To Physical Gold Coins and Bars - 18th Jan 18
The Interest Rates Are What Matter In This Market - 18th Jan 18
Crude Oil Sweat, Blood and Tears - 18th Jan 18
Land Rover Discovery Sport - Week 3 HSE Black Test Review - 18th Jan 18
The North Korea Quagmire: Part 1, A Contest of Colonialism and Communism - 18th Jan 18
Understand Currency Trade and Make Plenty of Money - 18th Jan 18
Bitcoin Price Crash Below $10,000. What's Next? We have answers… - 18th Jan 18
How to Trade Gold During Second Half of January, Daily Cycle Prediction - 18th Jan 18
More U.S. States Are Knocking Down Gold & Silver Barriers - 18th Jan 18
5 Economic Predictions for 2018 - 18th Jan 18
Land Rover Discovery Sport - What You Need to Know Before Buying - Owning Week 2 - 17th Jan 18
Bitcoin and Stock Prices, Both Symptoms of Speculative Extremes! - 17th Jan 18
So That’s What Stock Market Volatility Looks Like - 17th Jan 18
Tips On Choosing the Right Forex Dealer - 17th Jan 18
Crude Oil is Starting 2018 Strong but there's Undeniable Risk to the Downside - 16th Jan 18
SPX, NDX, INDU and RUT Stock Indices all at Resistance Levels - 16th Jan 18
Silver Prices To Surge – JP Morgan Has Acquired A “Massive Quantity of Physical Silver” - 16th Jan 18
Carillion Bankruptcy and the PFI Sector Spiraling Costs Crisis, Amey, G4S, Balfour Beatty, Serco.... - 16th Jan 18
Artificial Intelligence - Extermination of Humanity - 16th Jan 18
Carillion Goes Bust, as Government Refuses to Bailout PFI Contractors Debt and Pensions Liabilities - 15th Jan 18
What Really Happens in Iran?  - 15th Jan 18
Stock Market Near an Intermediate Top? - 15th Jan 18
The Key Economic Indicator You Should Watch in 2018 - 15th Jan 18
London Property Market Crash Looms As Prices Drop To 2 1/2 Year Low - 15th Jan 18
Some Fascinating Stock Market Fibonacci Relationships... - 15th Jan 18

Market Oracle FREE Newsletter

6 Critical Money Making Rules

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


© 2005-2018 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