Thursday, May 01, 2008

About U.K. House Prices

My friend Daniel Halvarsson has a great post about U.K. housing prices with a graph over historic U.K. house prices which is very telling. The post should be of particular readers for those of my readers that have recently been buying in the U.K. housing market (I'm not suggesting that was a bad decision as there might be good personal reasons for doing so. But from an investment point of view, the timing was bad).


Blogger Wille said...

Well, since you kindly hint at me, I'll bite.. :)
I am personally very aware of the precarious situation of the UK housing market, and I'm pretty sure there will be a correction to the tune of 10-20% in the country as a whole (with some areas seeing lower decreases, and some probably considerably higher decreases in value).

..but, there are a few things to point out:
If a market as a whole drops by even 25%, there will be drastic variations to this in various localities (personally, I'm banking on hopefully having identified good value to protect my own downside).

Finally, and perhaps most relevantly, the graph shown on Halvarssons blog only takes price trends into account, but not the actual interest rate situations or trends.
Although interest rates for mortgages are the highest for many years at the moment, they are still far, far below the rates seen at almost any time between 1970-1996.
It is not price alone that decides the affordability of housing, it is the combination of prices and mortgage interest rates.

(and, needless to say, "affordability" of ownership should also be contrasted with the alternate cost of living in rented accomodation, which is where most of the UK has been seriously out of whack for the last 3-4 years).

4:27 PM  
Blogger Kevin said...

While the situation of property for sale is troublesome, I find most remarkable that rental prices are going down.

Eg. rental prices in London went down last March... Let's keep an eye on April.

I agree that interest rates for mortgages will be a make or break for many, mostly for the buy-to-let investors.

1:29 PM  
Blogger Wille said...

I wouldn't trust a single letting website..
Official figures have been pointing at rental prices moving up (which is natural, as people divert their attention from owning to renting)..
It should also be noted that there is a big natural divergence in rental prices even within an area in London, based on size, standard, type of rental contract (lock-in period etc).

The natural development is probably that there will be a "meet in the middle" where rental prices rise while ownership costs sink as a consequence of lower prices.
That being said, it is going to be painful for a lot of home owners, in particular those who have bought in areas where there has been a 30-50% cost premium on ownership compared to renting.

3:08 PM  
Blogger Kevin said...

You are probably right, rental prices are supposed to go up, specially in London where housing stock remains stale for decades, ie. no new homes are being built.

Anyhow, very interesting times ahead...

3:14 PM  

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