How Often Do House Prices Fall?

Interesting - very interesting - but just out of interest (and boredom at work) I have just pasted the Nationwide figures into a spreadsheet alongside a list of annual inflation figures for the same period (excluding 2007 cos I don't have that figure to hand). The result is 13 price falls in 54 years. Which means that house prices fall in real times every once in four years. Almost needless to say (given the price inflation of the 70s and 80s) that the latest house price boom absolutely dwarfs all the others. Anyone still fancy predicting a soft landing?

I don't think you can read too much into past data, every year's circumstances are unique. While the media sensationalised price increases, people who weren't already on the property ladder panic and take desperate measures such as silly income multipliers and lying about their income, anything to get on the property ladder, pushing up demand and prices. But once the media start to sensationalise price falls (and there are early signs of that) far from people being paniced into buying, people who were going to buy hold back a) for fear of buying something that drops in value, and b) in hope of getting a bargain further down the line. On top of that, amongst those who still want to buy, lenders have tightened criteria and likely scrutinise applications more carefully, so many who want to buy will not be able to. Then there's the fact that buy-to-let is both less attractive, and lenders again are less willing to lend, so there will be less demand there as well. And there are high levels of emmigration from the UK, and whilst there is also high levels of imigration, many of the people leaving are likely to be homeowners, whereas many people coming from Eastern Europe live in shared flats, and only intend to stay for a few years. Nobody can predict what is going to happen, but it's hard to see any positive indicators at the moment. When you couple all that with the wider economic predictions - falls in employment and so on, it does look pretty grim.

TK421421 is absolutely right. Unless the variation in the value of money is factored in, the price history is not terribly helpful. What might be even more useful, since wage inflation and price inflation do not move strictly in step with one another, would be to rate the price of houses against average earnings. I agree that a hard landing is almost unavoidable, which, looking on the bright side, means that housing is going to be more affordable soon.

THe last correction in the early 1990's saw house prices go down by 10.6% over 6 years and the RPI go up by 29% making an overall correction of about 40% which is what is needed now. If inflation is lower then maybe the actual decrease this time will be larger but, as before, i suspect it will be spread over more years (say 6) than is currently anticipated.

I'm not sure past performance is such a great predictor in our current situation. If I remember correctly, US prices have never had a YoY fall. It will almost certainly happen now though.

I agree with pcfc. I also want house prices to fall. If the media didn`t hype things up so much and kept things realistic then i feel people would be living well within their means as opposed to overstretching themselves. Surely this is much more healthy. I know someone who bought with his ex and secured debt against the value of the house. They have now split up and have nothing to show . I am in rented accomodation and i am looking to buy. Even though i`m on a half decent salary i can`t ever envisage the day i will own my own home. This is because i refuse to overstretch myself. If the nation adopted this approach i`m sure we would be in a more realistic world. Its a tragic state we are in.

There is a large difference between the Halifax and Nationwide data for each year, more than just statistical error. So how can we rely on such data?

My veiw on this subject is that house prices are far to high, which has happened because of low interests rates and lenders allowing people to borrow silly multiples of there income and offering other products like self certification, which has allowed people to exaggerate there incomes to get the Mortgage they need, and in turn fuel the ever increasing House price inflation. A re alignment is due, but I do not see a big drop in house prices, more a drop in there value over several years. By this I mean Inflation is already creaping back into the economy as China increases the price of goods. Pay awards will probably be in the order of 3 to 4% in the coming years. So with some modest discounting of properties for those that must sell, and the effects of Inflation then in 4 years time we will see a £200000 house today still costing £200000, however in todays money worth only about say £170000. Just a foot note (well paragraph) to finish, Inflation is alway's reported as bad for the economy (which it probably is in the long run), however for the average working man it is fantastic, because it may be a struggle to get on the Housing ladder, but once on it in a few short years with good pay rises (Due to inflation) the Morgage is lower as a % of your take home salary, Your Equity Percentage in your property has gone up, and you are soon thinking about moving up the property ladder. i.e. Starter flat to Family home etc. So my prediction is a few years of inflation at 4% and House prices staying more or less static with just a few percentage drop in less desirable areas. Result a real drop in Value making them more affordable. So if you want to buy a property and have a stable job, buy as soon as you can, you are very unlikely end up in negative equity, and year on year it will seem cheaper. Before you know it you will be ready to move up the ladder. And so on ....

I couldn't agree more with the view that the sooner house prices fall substantially the better. The only "real" losers would be people who have geared themselves ridiculously by taking out high mortgages and even they would only get into difficulty (because of the drop in price at least - whether they can continue to afford their mortgage is another matter) if they have to move and either have negative equity or insufficient equity for a deposit on their next home. Don't get me started on the idea that the economy relies on all of us spending on things we don't need - welcome to the madhouse!

Well done, Whitehartlad. People need houses but the media are creating uncertainty in buyers minds. A self-fulfilling prophesy on their part. Don't build tens of thousands of houses for lower-paid in the south-east, pay them a realistic salary in the first place. Tax londoners to pay for it thus trending people out of the capital and spreading that wealth around the country.

I haven't got the inflation figures, but while I was reading the article it seemed obvious that any increase around 5% or less isn't really increasing the price of your house. So tallying up the negative less than 5% and 5% increases, on the Halifax you get 4 negative, 2 less than 5%, and 6 around 5%. Thats 12 out of 24 years, house price average is down or flat. So half the time, house prices are not exceeding 5%. Compare this against average mortgage rates (Not Bank of England interest rates, since mortages always used to be at a massive premium over BoE Interest), and I expect that most of the time we are just keeping up with the interest on houses. But the other half the time house prices ar rocketing over 5%. (Halifax has 9 years at over 10%, thats over a third of the time you get 10% or more increase. (Which I'd be glad to get on any 'safe' investment.) I'm surprised that the article's author doesn't point out that flat house prices are still costing us money, so flat and negative years are both bad for our wallets. Finally, I noticed on Halifax that increases switch between flat (5%) and massive (10% or more) on pretty much alternative years (in the market going up phases), so timing your purchase isn't possible. Or necessary, as long as you intend to stay in the property for 2-3 years. In the 'market going down years', you just have to wait until the 'market going up years'. Or sell now and try to avoid that 'market going down' period. My guess is it will be mainly flat or down ears for the next 5 years. (I also talied the Nationwide figures, for 6 negative, 8 less than 5%, 5 years at 5%. That's 19 negative or flat years (flat meaning 5% or less). 19 flat years out of 55 is about a third of the time is 'flat'. And for increases greater than 10%: 18 years of 55, is also about a third the time. (Presuambly with about a third at 6%-10%) To me, two-thirds of years with more than 6% increases (and half of those at more than 10%) still looks like a pretty goo investment. And you've got somewhere to live.) I'm not knocking the author in particular, as I think most Fool articles are very good. But the first comment on the article pointed out a better comparison than just positive or negative years. I do think the author might do a bit more homework! (And now apologies to Cliff, as normally I think his articles are some of the best at the Fool, but I didn't check to see who wrote this until after I'd written the rest of this comment.)

Economic Growth is only possible with a growing population, hence why the Government is allowing so much immegration. More People fighting over the same amount of housing means property prices will increase in the long term. When the population starts to fall, (About the time the 60's Baby Boomer's start to die of) there will be a massive Recession, then Property prices will drop big time. 20 to 30 years time my guess. In the mean time they may stagnate while inflation pulls up wages to bring a few financially creative people into the market. Forget the years of quick profits, they are gone forever. Buy a property as a home or a very long term investment (10 years plus) if the rental covers the Mortgage.

Interesting !! In the light of the news that we nationally owe 1.3 trillion pounds on credit, does that mean that the true value of UK property has to be slashed by a third?? Comments, please!

Lucky or prudent - perhaps a bit of both. I invested £15k in three flats in 1999 at £40K each - 12.5% deposit. On a bad day I'd get £120K each for them. Pay back my £105 mortgage gets me £255K. Thats a 1700% return or 212% pa ish on my investment. I've bought another seven over the years and have put time and effort in to them. Costs and capital gains have to be considered but rentals take care of the mortgage and nothings for nothing. My view is keep a tight rein and property can serve you well.

As usual there are lies, damn lies and statistics. The problem is that everything is so skewed becausde most of us do not understsand statistics and just look at raw data. Several of you have mentioned how the two indexes here do not really stack up - that is one problem. Also, of course inflation and wage progression has to be taken into account. But also: Looking at the Halifax index I noted how I bought in a recession in 1992, and over a two yar period prices fell 10.5 percent. But that came after a 34 percent rise in 1988 and years like that skewed everything. Did I do better to buy in the slump? Of course not, as the heady late 80s average after 28.9 percent rises across 1986-87 was still some £13000 lower than in 1992. Hence, even buying in the upcurve phase was cheaper than buying in the early 90s downturn. Morever, the calculations are based on extreme years such as 1988,s 34 percent rise. After that, of course increases would be smallish (but starting from a 'high' base). The following falls were, ok, falls, but still small beer owing to the original spate of rises. Even after four years of falling indexes between 1991 and 95 the prices were still, on average, some 20 percent higher than eight years earlier. I haven't even mentioned the skew factor of interest rates. In any case, what does "average " mean? Nothing: Take an unemployed person, a shelf stacker, a student, a teacher and a merchant banker and work out their "average" wage. It will be far too small for the banker - and far too big for most of the rest. It is almost irrelevant! And finally: Take the "average" house price: £197,000 (says Halifax) I don't even want to start thinking how much house that would buy in the southeast or even the general south. But I can tell you that in Newcastle Upon Tyne, in the "deprived" northeast, you'll not get much house for that. A flat, yes, but not a house. So, to conclude, never believe the hype, the experts, the statisticians, and, above all, the peddlers of the concept of "average."

I took TK421421's idea about comparing Inflation figures (all items) v house prices and did a chart with linear trend lines. Now what is strange is that the trend lines diverge as inflation becomes less and house prices become more. I guess there are a number of reasons for this... Cheap imports, shortage of land, population per square mile, technology improving production etc but what will happens next? Either they continue to diverge on the 60yr trend and houses keep booming and goods stay cheap or the opposite happens and there is a correction where the trends join and there is a massive House price correction (60-70 years in the making). My guess is as good as yours but I believe is that 52 years is not long enough to incorporate all economic waves and get a true idea of what will happen next. And my Granddad said things go in 70 year cycles so I'm not going to be diving into property right now!

"Success rate" is irrelevant for an investor - if the losses on the downside are high enough then the strategy will still fail. Shorting 10% out of the money put options has a great success rate but is a bad strategy. Housing is still a viable long term investment - but given how high transaction costs are, and how long real house prices can take to recover (it took 10 years after 1988 in london), and the huge leverage involved in buying a house, it is not a short term speculative strategy - unfortunately a lot of Britons don't seem to believe this.

I'm looking at this from a relatively neutral perspective being in a house I intend to stay in for a long time. I have to say that we have seen people predicting the crash for a while now, many of whom have advised that they have sold their own houses in advance in readiness for this. As time has gone on these assertions seem to have been made with an increasing twinge of desperation. Yes, I think this scaremongering and the credit crunch may put off first time buyers, alongside the introduction of HIPs (which, incidentally, I believe have actually given the recent artificial slow down which is being prophesied to be the beginning of the end but which would have otherwise have quickly self-righted)we are likely to see a slow down in first time buyers and a slow down in the market. Having said this, the results of a slow down or slight decrease are likely to be lower interest rates and less property coming onto the market. Add to these lower interest rates and shortage of property available, an increasing number of first time buyers waiting to buy and who have held back and maybe saved more of a deposit and you have a market facing a potential second 'boom' phase. You may think this is a load of rubbish but I think the only thing we can all agree on is that we will never all agree, and none of us really know for certain. I would like to think that the one good thing to come from this will be an increased awareness amongst first time buyers that it is much safer to try and get a good deposit together, and before you all shoot me down and tell me it's impossible,(I say this not out of conceit but just to show any first time buyers out there it is possible) I worked up to 60 hours a week while I was still at Uni to get mine together and I know exactly how hard it is but that it is absolutely worth it.

I agree that there is too much hype about house prices, most of it produced by the media where good news is no news. We bought a house to live in and still consider that paying a mortgage is a more comfortable position than paying out rent, which is usually more than a mortgage, it does mean that we have invested by way of a deposit and fees etc, but it does mean that one day we will actually own this house and which ever way you run your spreadsheets a house is an appreciating assett, which has similar issues as investing in shares, gold etc. the one common denominator is that ther will be rises and falls and as a famous American once said "if you cany hold shares for 10 years then don't hold them for 10 minutes".It has always been that case that for the average worker in this country we have needed to have two incomes to be able to save for and obtain a mortgage. As long as interest rates and employment remain stable then house prices in the short term have no meaning except as a topic for the pub, personally I think that the market is due a small correction and that this is a good thing, allowing wage inflation to enable people to save a deposit and purchase a property, but if you want multiple holidays and all the latest "toys" then go ahead and blow your deposit and never own an appreciating assett.If Merryn Hughes wants to buy and sell her house to make money then unlike me she is not looking for a home and I feel sorry for her family.

well mercedezslr if you are really serious about living anywhere in the country why not try the south wales valleys.for £60000 you should be able to get a 2 bed flat or if you could bite the bullet and have a small mortgage ,say £200000 you could have a decent 2 bed house,actually i might have got just the thing for you, we should talk!

Why is it that when people make a lot of money on their property they leave the country that made it possible in the first place ?

I have only just discovered this site but the Nationwide House Price index going back to 1952 says it all to those who will not accept the fundamentals of the UK house market and that is that we are a small country with a relatively large population. It has grown by 4.5 millon since 1971. Coupled with the fact that cheap rented accommodation is for most people not an available option with the best part of the council housing stock sold off under the "right to buy scheme". Residential development land is relatively scarce and expensive particularly in areas of the country where people want to live and have access to employment,further, potential redevelopment land is limited even in many urban areas due to planning restrictions because of its close proximity to green belt or ssi designated areas.
I have been actively involved at the sharpe end of the house market since 1977 and despite all the theories and speculation about what drives it. It is quite clear that it is simply Supply and Demand and the means to pay for it. Yes supply and demand and the money to fund it will peak and trough along the way. Social and ecconomic conditions will also have short term influences on the house market. Remember, that people have a basic need for somewhere to live and call Home, so they buy a property either to live in or for someone else to occupy. Despite tinkering around the edges by the politicions the underlying fundamentals of the house market remain the same and therefore we should expect property prices to continue to increase as has been the persistant trend for the last 50 to 60 years.