Podcast Summary
Real House Prices in UK: Despite nominal growth, real house prices in UK have not increased in 20 years due to inflation, and high mortgage costs remain a challenge.
The British housing market has seen flat growth for over a year, with nominal house prices increasing by around 1.5-1.6% annually. However, when adjusted for inflation, real house prices have decreased significantly. The new government's ambitious house-building targets and expected interest rate cuts may bring some positivity to the market, but affordability and job security remain key factors. Despite the media's portrayal of rising house prices, real house prices in the UK have not increased in the last 20 years when adjusted for inflation. The market's stability is due in part to the absence of distressed sales and only slight increases in unemployment. However, high mortgage costs remain a significant challenge.
Housing price discrepancies: While the average house price remains stable, housing price changes vary greatly depending on the type and location of properties. Semi-detached houses have seen the biggest increase, while flats have remained unchanged, and detached houses have only seen a slight increase. Homeowners should also consider additional costs when evaluating profits from selling a house.
While the average house price in the UK may seem stable, recent inflation has significantly impacted housing prices in various parts of the country. Some areas have experienced massive increases, while others have seen falls. This discrepancy is often hidden by the average figure. For instance, semi-detached houses have seen the biggest increase (2.2%) in prices over the last year, while flats have remained unchanged. Detached houses have only seen a 0.3% increase. These granular figures from the Office for National Statistics (ONS) reveal more accurate information about property price changes than lender surveys. Homeowners should also consider additional costs, such as maintenance and interest payments, when evaluating their profits from selling a house. Overall, the housing market is complex, and it's crucial to look beyond the average house price to fully understand the situation.
UK housing market divide: Detached houses and flats face high mortgage costs and ongoing issues, while semi-detached houses remain steady. New builds see price increases, resales decrease, and mortgage borrowing is crucial to the market.
The housing market in the UK is experiencing a significant divide between different types of properties and the methods of purchasing them. Detached houses and flats are facing challenges due to high mortgage costs and ongoing issues like leasehold reviews and cladding problems. Semi-detached houses, however, are holding steady. New build properties are seeing a significant price increase, while existing resale properties are decreasing. Mortgage borrowing is crucial to the market, and transaction volumes are down for mortgaged purchases but up for cash transactions. House affordability remains a concern, with the average house price being around six times the average household income, above the long-term average of four and a half times. Despite this, the narrative that house prices will always increase continues to influence the market.
Housing affordability and wage growth: Despite real house prices remaining stable, affordability has worsened due to stagnant wage growth, leading to a higher percentage of income spent on mortgage payments, negatively impacting quality of life
Despite house prices in real terms not changing significantly over an extended period, affordability has become a major issue due to stagnant wage growth. This is because lending criteria are based on income, leading to a strong link between wages and house prices. The result is that despite houses not increasing in real value, they have become less affordable due to poor wage growth. For instance, a borrower earning the average UK income buying a typical first-time buyer property would currently spend 37% of their take-home pay on monthly mortgage payments, which is above the long-term average of 30%. This has a significant impact on quality of life, as people are forced to prioritize mortgage payments over other expenses. To improve affordability, either house prices need to fall relative to wages or wages need to rise. A gradual increase in wage growth and reasonable nominal price growth would be the ideal scenario. It's important to note that the UK is not a uniform market when it comes to house prices, with significant differences between London and the rest of the country. Southern England, particularly, has seen a decline in prices, while the north has experienced growth.
UK housing market regional differences: Some regions in the UK, like Northern Ireland, North West, and Yorkshire and Humberside, are experiencing growth, while London remains stagnant due to overpopulation and high housing costs. The market is expected to see a modest pick-up in sales volumes in the next quarter and a more significant increase in a year.
The UK housing market is experiencing regional variation, with some areas, like Northern Ireland, the North West, and Yorkshire and Humberside, seeing growth, while others, particularly London, remain stagnant. London, being the wealthy region, attracts a large population due to higher wages, creating a self-perpetuating problem of overpopulation and high housing costs. The housing market data from the Bank of England and the Royal Institute of Chartered Surveyors suggest a cooling off in the market, with mortgage approvals falling and new buyer inquiries dipping. However, there is some optimism for a modest pick-up in sales volumes in the next quarter and a more significant increase in sales activity expected in a year. Overall, the UK housing market is complex, with London being a significant outlier, and regional differences playing a significant role in market trends.
Housing market outlook: Rics predicts a slight price decrease in the next quarter followed by a significant increase over the next year due to interest rate drops and Labour's housing policies, but challenges lie in increasing housing supply and addressing infrastructure needs
According to Rics, the housing market is expected to experience a slight price decrease in the next quarter but a significant increase over the next year. This optimistic outlook is largely due to the upcoming interest rate drops and Labour's housing policies, particularly their mortgage guarantee scheme and efforts to increase housing supply by 300,000 homes per year. However, achieving this goal may face challenges due to the reluctance of house builders to increase supply and the controversy surrounding easing Greenbelt development and building new towns. The success of Labour's housing policies will depend on their ability to overcome these challenges and address the infrastructure needs that come with increased housing development.
Housing supply and prices: A 1% increase in housing supply should theoretically lead to a 2% decrease in house prices, but the impact is often geographically limited and new housing demand can outpace supply, leading to rising prices
Increasing housing supply does put downward pressure on prices, but this effect is often outweighed by factors like falling interest rates, immigration, and other sources of demand. While some people may believe that building more houses won't lower prices due to the concept of affordability, research shows that a 1% increase in housing supply should lead to a 2% fall in house prices, assuming nothing else changes. However, the impact of new housing supply is often geographically limited, and large-scale housing construction with sufficient spread across regions is needed to significantly affect prices. Despite this, it's important to note that overall housing demand in the UK, driven by factors like immigration and new household formation, tends to outstrip supply, leading to rising house prices.
Housing market dynamics: The housing market is influenced by various factors including supply and demand, quality of housing, and local services and infrastructure. Building new houses can have both positive and negative effects on prices and amenities.
The housing market is influenced by various complex factors, including supply and demand, quality of housing, and local services and infrastructure. While building new houses can lead to improvements in amenities and even push up prices in the local context, it can also lead to regional price falls. The idea of concealed households and the equilibrium effect of house prices are also important considerations. Despite the challenges, the quality of new housing, with features like solar power and heat pumps, can be a net positive for households, even if prices do not decrease significantly. Overall, the housing market is intricate, and understanding these dynamics can help inform decisions related to housing affordability and investment.