Calculating the Past to Determine the Future of UK House Prices

UK 03 October 2009 - Regular readers on the site will know I wrote several articles earlier this year that analysed the dynamics of UK house prices and affordability since 1957, including a detailed look at the last housing crash, to try and forecast how much farther prices are likely to fall this time.

I used the Nationwide affordability index, which shows the percentage of first time buyers salaries that are being used on mortgage repayments, to show how affordability has a direct affect on house prices. However, I was left hamstrung by the fact that Nationwide's affordability index stopped in the fourth quarter of 2008. So I had to try and forecast for the past before I could forecast for the future.

Read the articles by clicking the links below (perhaps bookmark this, them or both for future reading):

UK House Prices: Learning the Correction Lesson

(Long and Drawn out.

Land Registry UK House Price Decline Slows - Prolonging the Agony(The theory explained more concisely)

More on the Cause of the UK House Price Correction: Lack of Affordability(A different way of looking at it, and my wait for Nationwide to publish up to date affordability figures).

Well, they have finally published the figures for, not only Q1 but Q2 as well. I have been checking regularly, and they must have added both when they added the Q3 house price index. Never mind; now that I have it I can add the figures into my calculation to see how much farther prices have to fall before this correction will end.

As I have linked to the previous articles above, I will simply put the opinion they carried here: Once houses become so expensive that the average mortgage repayment is over 110% of a first time buyers salary, a severe correction becomes necessary. These corrections do not just take us back to the long-term average of about 90%, they take house prices down until mortgage repayments are within 60% of first time buyers salaries.

The Nationwide affordability index shows that the percentage of first time buyer's salaries being spent on mortgage repayments dropped from 105.9% in Q4 2008, to 91.6% in Q1 2009, during which time house prices fell £7,119.00. Unfortunately prices began increasing then, and an increase of £4,357.00 on house prices put the affordability index back up to 93.6% in Q2.

Using the lowest of those two measures: the affordability index decreases by 1% (first time buyers spend 1% less covering their mortgage) for approximately every £2,000.00 that house prices fall. Based on that: for the affordability index to come down the 33% to 60% house prices have to fall a further £66,000 (approx. 40%).

Using the biggest of those measures: the affordability index decreases by 2% for every £1,000 that prices fall. Based on that: further house price falls of £16,500 (approx. 9.7%) would bring the affordability index down to 60%.

As we are using just 2 different figures, the average is the sum of the 2 divided by 2, which is £41,250. I am going to make that my definitive forecast on the UK housing market; that house prices must fall a further 25% from their current level before the correction will end.

You can download all the indexes used to in this article here.

Like this article: Subscribe to our feed so you never miss a post

By Liam Bailey - 2009-10-03 14:57:25

Buy articles button Page copy protected against web site content infringement by Copyscape

Bookmark and Share Bookmark and Share Add to Mixx!

Leave a Comment on this Post

Filed under: UK Property, Opinion Articles

Tagged: UK House Prices | Affordability | Indices | Nationwide | Predictions | Forecasts |

About the Author: Liam Bailey

Liam is the director of SEO services company Write About Property.

View all UK Property ArticlesSubscribe to UK property articles feedUK property articles by Email

View all ArticlesSubscribe to Write About Property articles feedAll Write About Property Articles by Email

 
Have Your Say - Post a Comment

captch image

Your Ad Here

Subscribe by Email

Enter your email address:

Delivered by FeedBurner

By Rss
feed icon

Sponsors



Socialise with Us

Facebook fan page

Links

Latest Posts

UK Housing Market: No One Wants to be a First Time Buyer

Turkey Standing out as Brightest Emerging Market in Europe

The Overseas Property Investment Crash: Where it all Went Wrong

UK House Prices: Can We Really Avoid a Second Dip?

Turkish C.Bank Keeps Interest Rate at Current Low

Property in Spain August 2010: Is it Time to Buy Yet?

Bad Year Leads to High Availability of Cheap Holiday Deals

Turkish Air Travel Growth Continues Apace

Turkish Property has Potential to be as Popular as Europe's Greats

Emerging Property Markets 2010 Part I: Egypt and Turkey

Related Posts

UK Housing Market: No One Wants to be a First Time Buyer

UK House Prices: Can We Really Avoid a Second Dip?

Second Dip in UK House Prices to be a Long One Says PWC

It Does Not Look Good for UK House Prices

Will New Govt Affect UK House Prices?

UK House Price Rises – Unsustainable or Flipping Great?

Mortgages Up but Still Subdued, UK House Prices Teetering on the Brink?

UK GDP Q1 Growth 0.7% Quarterly and 0.3% Annually

UK House Prices Shaky as Election Fears Push up Supply

Mortgages Fall by Half in Jan, Another Nail in UK House Prices' Coffin?

Sponsored Links