Looking at the historical data for UK house prices, we can see how volatile UK house prices have been.

When forecasting house prices and the future of the housing market, there are several things to consider:

• Number of new houses built
• Number of houses unoccupied / unsold
• Number of households. This depends on both population growth and demographic factors such as number of single people.
• House prices to earnings ratios. A feature of the past few years has been a rise in house price to earnings ratios. In other words house prices have been rising faster than average wages meaning that they became increasingly unaffordable. The downturn in prices is partly a reflection of this. Using house price to earnings ratios, there is still probability of significant falls in house prices in future months.
• Cost of mortgage payments as a % of disposable income. The importance of mortgage payments as a % of disposable income is that it determines the affordability of mortgage payments. Rising house prices mean bigger mortgages and more mortgage payments. However, it also depends on interest rates. Mortgage payments as a % of disposable income are higher than 6 years ago, but, still smaller than the 1991 peak when interest rates reached double figures.
• Confidence. A stream of negative news often worsens an already troubled housing market. Good news causes over excitement. The UK market is particularly vulnerable to wild swings in expectations leading to volatility in prices
• Availability of mortgages. If credit for mortgages dries up, it is more difficult to get a mortgage causing lower demand.