Real and Nominal House Prices

When we use real house prices, the 1989-93 crash is far more significant than just using nominal numbers. Inflation is this period was quite high. Real house prices fell 36% from 1989 to 1995.

See also:

• house price trends in UK

House Price Trends

Definition of Real house prices – nominal house price growth – inflation.

This gives a better understanding of the relative affordability of house prices. For example, in the late 1980s, inflation reached 11% meaning the nominal house price growth was partly caused by inflation. In the 2000s boom, inflation was much lower. The trend in real house prices reflects a long term trend in house prices. It doesn’t mean house prices will always grow at this rate. It just reflects what has happened in the past.

Recent House Prices

Real House Prices and Trend in Real House Prices

House Price Growth Annual %

Affordability of Housing

House Price to earnings Ratios

House Price Affordability for first time buyers

Mortgage Lending In UK – a reflection of the credit crunch

Historical Interest Rates in UK

More housing stats

Housing Market stats at ONS

Copyright:

Note Graphs can be reproduced freely on other websites, with link back to www.housingmarket.org.uk/

Housing benefit is a government benefit to help people pay their rent. It is targetted at people whose income is below a certain level.

Who can Claim Housing Benefit?

Typically, your wealth must also be low. People with over £16,000 of savings will not be entitled to get any housing benefit.

If you get Income Support or income-based Jobseeker’s Allowance then you will be eligible for housing benefit.

How to Apply for Housing Benefit?

You can apply for a form through your local council. It is dealt with at same time as applying for council tax benefit.

Housing benefit at Local gov

• Housing Market Statistics
• Why UK suffers from Housing Boom and Busts
• Credit crunch and Housing market
• Economic Impact of Housing crash
• Forecasts for housing market in 2009
• History of UK House Prices
• To what extent should government intervene in housing market?
• Who is to blame for housing crisis?
• Latest news and blog posts on Housing Market
• UK Economics Blog

Higher willingness to lend. Interest rates are very low, so the cost of mortgages should not be a problem. Some fixed rate mortgages are going for as low as 3%. The problem is banks are still reluctant to lend mortgages because of the shortage of their cash flow. Some banks even complain that low interest rates make it difficult to attract savers and therefore have enough to lend.

Affordability. With house prices falling fast (10-15%) it means they are becoming more affordable for first time buyers. Buying a house looks more attractive than it was 18 months ago. As house prices continue to fall, it will start to tempt more people back into the housing market. Another key issue is the affordability of housing compared to renting a house.

End of Recession With unemployment forecast to rise to 3 million because of deepening recession, many people will be deterred from buying a house in current climate of uncertainty. It is hard to imagine housing market picking up with output continuing to fall and unemployment rising. Unemployment is often a lagging indicator which means unemployment could still rise when economy first starts to pick up. But, when the economy starts to pick up, this may give the confidence necessary to potential home owners.

Housing Market Recovery by 2010?

In the last housing market downturn, house prices fell for about 4 years. This means we might not see a housing recovery until 2011. However, conditions are different and it is hard to predict how long house prices will continue to fall

The problem is that it is not easy to stabilise house prices. The record since 1980 is not good. However, one of the best policies would be to try and regulate the availability of credit. Making banks save in boom years, so when the downturn comes, banks can draw on their savings (rather than rely on government bailouts)

Yes, this involves intervening in the free market. But, the evidence of the recent boom and bust is that left to its own devices the free market creates a very unstable and volatile situation.

See: How To Avoid Boom and Bust in Housing Market

In part this reflects the UK economy which is experiencing a steep recession and sharp rise in unemployment [See: UK Economy 2009]

There is a strong link between the housing market and UK economy. One of the main factors behind the current recession is the falling house prices. As house prices fall, consumer spending tends to decline as confidence evaporates and people can no longer re-mortgages. The recession is making the house price fall even worse, creating a negative downward spiral.

House Prices in 2009

The negative momentum in house prices will continue throughout 2009. See: predicted house price falls

Mortgage Lending in 2009

Mortgage lending is currently at an all time low. The government is trying to put pressure on banks to revitalise mortgage lending. Whether this is successful will have a big bearing on the future of the housing market

New Home Builds.

The government has a target of building 240,000 homes a year, but, the construction industry is in recession and the number of new houses coming onto the market is likely to be very low. Due to the time lags involved in building houses, this is creating a shortage of housing which will be a problem when housing market recovers.

House Price Fall

This graph shows the sharp fall in house prices which have occured in the past few months. Most analysts expect further house price falls.

Mortgage lending still frozen. The number of new mortgage approvals is very low. The number of new mortgage loans is 52% lower than October 2007. (already by Oct 2007, mortgage approvals had fallen). WIth banks unwilling to lend mortgages, it is hard for potential homeowners to get into a position to buy.[Times article]

Cumulative Pessimism. The housing market is volatile and prone to speculative changes. (see why housing market is volatile) With prices falling, there is a strong incentive to delay purchasing. People are renting until the market shows signs of bottoming out. If the last housing bust is a guide, this might not be for another 2 years.

Rising Unemployment and Falling Growth. The economic slowdown has been much sharper than predicted. Mervyn King has said the economic slowdown in the UK will be very steep. With rising unemployment, repossession rise causing more houses to be put on market.

The current housing difficulties have meant that the government’s target for building new homes has fallen well short.

In the 3 months to September new housing starts fell 33% on seasonally adjusted figures. Compared to last year they have fallen by 50%. It is the lowest level since 1980. It means the UK will struggle to build 100,000 homes in 2008 – well short of the government’s target of 240,000.

2009, is unlikely to see any upswing in the homebuilding market. As the UK population continues to grow it is causing the likelyhood of future chronic shortages in new homes.