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UK house price mania: just how much are house prices up?

UK house price mania: just how much are house prices up?
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There’s a lot of talk about how crazy house prices have been of late. And there’s good reason for such talk, but I’ll get to that in a minute.

First, let’s consider context. That is, in order to have any sense of whether house prices are out of control, it’s important to have a sense of how house prices have moved in the past.

How much do house prices usually rise?

There’s nothing especially ‘usual’ in the way that house prices rise. Somewhat similar to share prices, the tendency has been for prices to rise over time, but on a year-to-year basis, it’s much harder to predict what will happen.

With that in mind, we can take a look at the annual change in average house prices across the UK each January for the past 20 years.


Year Average house price (£) Annual change
2020 232,824 1.97%
2019 228,314 1.68%
2018 224,544 4.32%
2017 215,243 4.76%
2016 205,464 7.76%
2015 190,665 7.01%
2014 178,182 6.24%
2013 167,716 1.09%
2012 165,908 -0.83%
2011 167,300 -0.10%
2010 167,469 6.51%
2009 157,234 -15.37%
2008 185,782 5.11%
2007 176,758 10.49%
2006 159,970 6.20%
2005 150,633 9.97%
2004 136,976 9.72%
2003 124,836 27.88%
2002 97,623 4.82%
2001 93,136 10.06%
2000 84,620 16.07%

Source: Office for National Statistics

Based on that table, there doesn’t seem to be much that you can say that house prices ‘usually’ do. Except, maybe that they’re ‘usually’ positive year on year.

2020 house prices in context

In the context of the past 20 years, the 1.97% year-on-year gain in January 2020 hardly seems like a lot. Even the higher 3.38% year-on-year gain that we saw in June looks rather low compared to years like 2016, 2007 or, certainly, 2003.

I suspect that part of the concern rises from the fact that the global financial crisis and the damage that wrought on house prices in 2009 and thereafter is still relatively fresh in the memory. Since 2013, we’ve seen steady year-on-year gains in the market. ‘Surely,’ many people may think, ‘it’s been too long and prices have risen too far since the last decline. Surely another decline is around the corner.’

While that may seem logical, I wouldn’t stake my decision to buy a house (or not) on it. For one, markets don’t tend to stick to predictable timetables. Beyond that, the kind of market price bubbles that cause disastrous crashes tend to stem from multi-year euphoric price rises. I’d suggest we haven’t seen that.

The real concern for 2020 house prices

What drives most of the hand wringing around the 2020 house price increases though, is likely to be the unexpected nature of the gains. With coronavirus wreaking havoc in the UK and on the world economy, everyone was expecting that house price rises would at least pause, if not fall.

The economics were expected to look something like this: workers lose jobs, homeowners and renters alike struggle to maintain payments, buyers spend their down payment money and other savings to buy groceries and suddenly you’ve got lots of properties potentially coming to market under tough circumstances with few buyers able to purchase.

Instead, buyers put off buying for a while, but then came back to the market en masse. Couple that with the stamp duty holiday and you end up with a scenario where a lot of buying pressure builds on supply that hasn’t really expanded. And, voila! House prices rise.

But what’s next for house prices?

The Centre for Economics and Business Research (CEBR) says that house prices will fall nearly 14% in 2021 compared to 2020.

The logic from CEBR is fairly sound – the abatement of the pent-up demand rush, the end of the stamp duty holiday and the recession conditions brought on by the pandemic will lead to a hefty drop. I’m not quite as convinced though. The pandemic is nothing if not unpredictable, so trying to wager what it will lead to over the next 12 months will be near impossible.

It might seem easy to say that the outcome will be ‘bad’ no matter what, but bear in mind that market forces are driven by changes in expectations, not current reality. This means that housing market activity and prices will be driven not by how objectively good or bad the next 12 months are, but how good or bad they are in comparison to what people currently expect.

Add to that the fact that ‘logic’ isn’t always the best watchword to use with markets, especially over short periods of time. In the housing market, this may be doubly true. People are driven to buy or sell houses often based on life circumstances, and the decisions are often driven from there on emotion, not cold calculation.

Which leaves us where?

For starters, I’d say that it’s well worth keeping in mind that the house prices gains over the past year haven’t been particularly high in the longer-term context. For all the talk of a ‘booming’ market, it could easily be argued that prices are subdued, if anything.

But a global pandemic means that we may not want to anchor to historical market performance the way we normally would (though, to be fair, there’s often reason to say ‘there’s something different this year.’).

All of this leaves us essentially where we might be at just about any time. For most people, speculating on house prices and the housing market is likely a dicey play. Trying to chase a rising market may lead to heartbreak, especially with the coronavirus economy as a backdrop. The same goes for making any rash housing-related decision based on perceived price movements.

On the other hand, life often dictates that buying a house is something that would benefit your family. Maybe for financial reasons, but possibly for reasons of convenience, emotion or stability.

These buyers are generally looking for a home to live in over a long period of time. Potential buyers in this camp shouldn’t ignore what’s going on in the market, but since the driver of the choice to buy a home isn’t an aim to get rich from it, then concerns about movements in market prices shouldn’t have the final word in the buy or don’t buy decision.

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