Could house prices rise by a quarter?

July 28, 2008

house-prices-sky-high.JPGForget everything you’ve heard about the looming property crash.

In the midst of dire warnings about collapsing house prices comes a lone voice offering a crumb of comfort for hard-pressed homeowners.

A report by the National Housing Federation says that far from falling off a cliff, house prices could actually rise by a quarter by 2013.

It says demand for homes is rising because people are living longer, delaying getting married and are more likely to divorce.

Nearly 1.7 million people are on waiting lists for public housing and thousands of first-time buyers are saving up to buy a home, it says.

“As soon as the economic outlook improves house prices will resume their previous upward trajectory,” said the federation’s Chief Executive David Orr.

The Federation also says the supply of new homes still lags behind demand.

Not everyone agrees, however.

A report by Deloitte this week forecast that house prices will fall by a third and that the slump will last until 2010.

Inflation, shrinking incomes and the economic downturn will all take their toll, it said.

Where do you think the market is heading? Do you expect the price of your house to rise or fall in the next few years?


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Unfortunately, this assessment is based on the idea that if demand exceeds supply then prices must go up. In most markets this is true, but “demand” must be qualified as “actionable demand.”

I may want a collection a fine gems, but if I cannot afford it then it isn’t real demand. So it is with the housing market. If people want to buy but cannot get a mortgage then it isn’t real demand. The days of banks lending people six times their income are over.

House prices must now fall until the average house price is no more than four times average income. This translates into a fall of about 40%.

Posted by Geoff Dann | Report as abusive

I suffered negative equity in the early nineties and it felt at the time that we were stuck in our flat forever. We wanted to move 2 years before we could, and I suspect a lot of people are today in that same boat – just waiting for their chance.

Thankfully we managed to hold out, sold up in 1998 with a 25% premium on what we bought for in 1991. Not a lot perhaps, but said flat is now worth 3 times the value in 1998. The situation in the nineties felt a hundred times worse than now whatever the hype so I would bet the recovery will be quicker.

Media is just more vocal and soundbite driven than ever and make a mountain out of any molehill.So, after a year or 2 of correction (compared to about 6-7 in the nineties…), I would assume prices will go through the roof again. Supply and demand isn’t it?

Rising numbers of households, caused by smaller groups, immigration etc. People have to live somewhere and that will push prices up again eventually.

I suspect the pool of people wanting to buy for the first time/move on, is growing daily and as soon as they can, people will move again. There is less unemployment now, interest rates lower etc, so of course this will be shorter than the last time.

Posted by Rusell | Report as abusive

House prices could do absolutely anything, in principle. They could all fall to zero value by tomorrow teatime, or they could rise by 25% over 5 years.

Frankly any justification for house prices based upon perceived social trends and desire for real estate is fallacious. It is all looking at the wrong part of the equation. You need to ask how people are going to pay for more expensive houses. If your answer is by selling their existing house for more, then I’m afraid, you’re in for a shock. You’ve been duped – I hope you enjoy penury.

Posted by Steve | Report as abusive

Somehow the fact that we are going into a recession has been overlooked in this “report” ?!

I think it would be the first time in history that we have house price increases so soon after being in a recession.

I think the same “federation” published a news article last year about the average house price being £300k by 2010.

We occasionally get ridiculous articles like this in a amongst the doom, like the gasps of a last breath.

Most people, apart from those on the brink of negative equity of which it is only a small percentage, would like to see house price falls – yes even home owners of which I am one.

High house prices are bad for MOST people.

Posted by Andy | Report as abusive

Demand for homes is rising? On the same day that hometrack figures show 6% fewer registered buyers at Estate Agents than last month?
Demand is falling and will continue to fall as prices fall.
The “virtuous” circle that drove prices up has turned into a vicious one driving prices down. It will last at least 3 years, and it is worse than the 90s (IMO, obviously).
In the 90s you didn’t see banks stop lending.

Posted by Bob | Report as abusive

House prices may climb back up again in 2013. But we could also have three years of horrific poverty before we get there. America is bankrupt and is just printing money, that will effect the western world like never before.

Posted by Leo | Report as abusive

Just how can anyone make such an assumption? People are living with so much more debt than years ago. The buy now, pay later mantra can’t go on indefinately.

Are wages going to go up accordingly to pay for the ever increasing amounts necessary to purchase such properties? If this is the case, they may rise by 25% but only because of inflation. Government would do better by the people to ensure job creation is at the top of their list and not the myth it seems to be.

Posted by Nan | Report as abusive

In response to all the doom-mongers. Banks have only stopped lending because they have to. They will go out of business in their droves if they don’t lend. As soon as they can, they will lend again. We are not going back to the stone age! This is all about confidence, and of course everyone would rather save for a rainy day right now! This is a cycle we are in, not the apocalypse. The question is how long and how deep and people who were around in the nineties, know that this is NOT as bad!

Posted by Rusell | Report as abusive

Yes the value of the housing stock will rise, and don’t be surprised either, because the UK has the most extraordinary house market which amounts to a massive total value of trillions. It’s dynamics do not follow any rules we know.

This is NOT France or Germany – the UK is unique and the market is far stronger than anywhere else.

The so-called recession will be short lived, the price of oil will plummet, the UK will substantially increase it’s food production and the government will finally manage the energy suppliers, et al.

By 2010 the worst of what we are experiencing will be over.

Posted by The Truth Is… | Report as abusive

Do you think Mervyn King will allow prices to go up on homes, They have learned their lesson its not going to happen again, he will put up intrest rates to stop this and he has said he would like houses in the shopping basket.

Posted by dave | Report as abusive

I think we will see further drops in house prices in the medium term but as with most markets there could be some periods when the market recovers before falling again.
I was interested to see a small reduction in lending rates last week and if this continued it should provide some support to property prices. The fundimentals of supply and demand should prevail in the end but at present the slowing economy and increasing job insecurity will hamper any quick turnaround in property prices.

Posted by David Hindmarch | Report as abusive

While it is true that real demand for mortgages is rooted in their affordability, this is not the same as real demand for housing, which manifests itself in rental prices as well (and also in demand for mobile homes, lodgings etc…)

A house fulfils the basic need for shelter first and foremost, and this need can be served without buying a house.

There is no reason to say that a house will not become a commodity affordable only to the wealthy. A scenario where property is owned by a relatively small proportion of the population may seem unthinkable, but occurs in other parts of the world.

Posted by Steve | Report as abusive


Posted by Ian | Report as abusive

If the media spoke to real estate agents to see what the real picture is, the public would get a more true idea of what is going on.
Any idiot can predict a rise in the market, as we are seeing a downturn, so eventually of course they will rise.

Posted by Alan Tomlinson | Report as abusive

If you read the report you will see that they’re predicting a fall, followed by a rapid rise. There may be something in that because people will definitely go back into the market when valuations are more reasonable, but I very much doubt the net outcome by 2013 will be a 25% rise. For what it’s worth, my prediction is a fall of 30% in property prices over the next couple of years, followed by a slow recovery if the coming recession (it’s coming!) is not desperately bad and bottoms out by 2010.

I do wonder at the bizarre contradictions in our “national thinking” on this and other issues though. Just as we agonise pathetically about the environment yet measure the whole strength of our economy by how many new cars are sold, we complain when house prices go up, because nobody can afford to buy, and when they go down, because we all think we’re losing money. What is needed is a major correction followed by a sustained period of very modest growth.

Posted by Matthew | Report as abusive

For 9 years people have predicted that prices would fall and they kept rising!. Those that have made the claim (up to 9 years ago!) now claim they were right… I suppose if you wait long enough then anything becomes right. Simple fact is everything goes through peaks and troughs…I will keep my money in property..It will go up again and you get some bricks and mortar and a roof over your head for your investment…think about longterm not shortterm!..

Posted by martin | Report as abusive

It is worth bearing in mind that this organisation represents Housing Associations, who like building firms, have large exposures to the property market through land banks, low cost home ownership and some speculative build for sale. One can’t help but wonder whether they are spinning the line that suits their own interest.

Posted by Richard Bankart | Report as abusive

You cannot directly compare what is happening now to house price falls in the 90’s as the circumstances are different.We are also in a different situation to the States because lending criteria is a lot more strict over here and also there is a lack of space to build new properties therefore it is likely demand will exceed supply for the foreseeable future. Therefore it is inevitable that house values will increase, and lenders will lend again

Posted by Devon | Report as abusive


Posted by geoff | Report as abusive

Geoff, 5.40 – so are you one of the clever ones? or did you do (sic) nothink!

Posted by phil | Report as abusive

Opinions – don’t you just LOVE ‘EM?! Truth is, of course, that no-one actually has much, if any, idea what lies in wait this next couple of years.

That said and for what it’s worth, I think that this current downward cycle will NOT be as bad nor last as long as many people think.

It’s also interesting just how many people actually WANT to wallow in the idea/notion that things are currently falling off a cliff!

One thing IS for sure and that is that the media will doubtless continue to copiously fuel any such doom-mongering tendencies by making an absolute meal of any bad news – ‘if it bleeds, it leads’ isn’t one of the old journalistic maxims for nothing!

Posted by mike | Report as abusive

Phil@6.33, you beat me to it! Very droll sir.

Posted by Chris | Report as abusive

If the National Housing Federation wishes to look silly and have absolutely no credibility rendering its employees unemployable, I suppose that’s up to them.

Posted by hotairmail | Report as abusive

Response to phil at 5:40 yesterday. Thanks for the advice. I must quickly pay off my debts and put aside a year’s salary. Hopefully be in place by teatime.

Posted by Rusell | Report as abusive

Naive over-optimism. House prices will drop for the next couple of years because they were allowed to spiral exponentially over the past ten years.

Yes, of course they will pick up in the long-term but we need to go through a period of painful readjustment if growth is to be sustainable.

Posted by Ross Brown | Report as abusive

Is buy to let dead or will it save the property market from a collapse?

Posted by David | Report as abusive

Rusell 7:56.

My thoughts precisely. I think anyone able to squirrel away a whole year’s salary is probably debt free (not inc. mortgages) anyway.

Posted by Tim | Report as abusive


Posted by Des | Report as abusive

Very good analysis, I completely agree with the possiblilty of a rise by a quarter.

But there will be a quarter rise after a 30-35% drop.

Posted by nilay | Report as abusive

Surely, we just need more investment in flood defences. It’s a national disgrace.

Posted by Robert Winzar | Report as abusive

Just a curiosity (joke?): if public statements often exagerate situations and if the market is always slower than analysis, then we should expect 5 years (not 2) for prices to slash 20% (not 33%) and by 2018 (not 2013) prices will go up by 15% (not 25%). We still have to find out whether they will increase by 15% from current prices, bottom prices in XX years or top prices in XX years…
My guess is any advertised rise is calculated against the bottom prices, as it sounds bigger…

Posted by Me | Report as abusive

Official News Release !!!!

Ice cream cures cancer and the common cold .

Signed on behalf of The Ice Cream Council

Posted by Pol | Report as abusive

We are going through an economic shift, the increase and now decrease in houses was caused by the banks’ willingness to lend more than they should have. The banks are now licking their wounds but they still have to satisfy their share holders and so they are cherry picking their investments.

One reason for house increases was the buy to let market, everyone and his dog dumped their pension to buy a flat to let. In 2006 most of these flats were empty and the buy to let market saturated as no one wanted to let because the banks made owning more attractive.

Now though most can’t afford to buy, the banks aren’t interested in 80% plus mortgages so this buy to let market is bouyant. This is the current oportunity in housing that will prevent the downward cycle of this market.

Britain is at a cross road, it has choices and opportunities. We are still a very unique country the problem is do we have the right leadership to take advantage of this economic shift?

Posted by Ian | Report as abusive

Oh noessssss, lets all go buy icecream!!!
Im totallllly behind you Pol July 29th, 2008 12:43

I’m soon to be a first time buyer, I work in the financial sector and luckily I can afford a mortgage on my own and have a sizeable deposit. IMHO I blame the media for blowing all this up and even if they do continue to fall, it won’t be for long before they rise again. I’m taking this opportunity to find a house, barter them down 10k+ which because of all the hype you can. and make a tidy profit when they go back up again in a year or 2. All IMHO

Posted by Chris | Report as abusive

Yes, but demand for housing tends to follow the path of least resistance. Ten years ago, it was cheaper to buy than to rent, hence the idea that rent is dead money; now, however, it is cheaper to rent than to buy, so mortgage interest is dead money (for someone buying now); in addition, your equity will reduce if, as seems inevitable, prices fall further.
There was demand for housing twenty years ago, but it didn’t stop prices dropping 30% (real terms) over a 7-year period. And there was demand for housing in Japan, but it didn’t stop prices falling 80% over fifteeen years!!! Yes, you really can pick up property in Japan for a FIFTH of the price of twenty years ago.

I’m waiting for prices to drop by a third or so (could take five years or more, like it did last time round), then start snapping up some bargains. Who knows: by then the banks might even consider lending buy-to-let mortgages again!

Posted by Mark | Report as abusive

the purveyors of doom are continuously talking the market down, i buy and sell properties and continue to do both and make money, everything is about buying right and selling right, buy now rent for a year or so and you will make money.

Posted by mick forfar | Report as abusive

I’m a hairdresser and a normal person. My clients and friends are struggling. There is no money to go around, we are in e recession, and wages aren’t going up. We have no housing shortage cos otherwise the houses that can’t sell would sell. Some city’s have got 40% of there houses empty cos they can’t sell them. We have a shortage of AFFORDABLE houses that normal people can buy. Normal people can’t get mortgages any more cos there in so money to lend to the people, so houses have to come down a lot more to make it NORMAL again. Interest rates are still historically low. compare with the 90’s it is not low at all for the individual cos of the amount people have borrowed. Everything is still going up around us and lots of people are losing there jobs. America has messed things up and if you think this government is gonna get you out of it think again! This country is on it’s ass and it’s not looking good for the future. WE HAVEN’T SEEN NOTHING YET!!!!!!!

Posted by phoebe | Report as abusive

Of course prices will rise again, and 25% might be conservative. Housing is in short supply and will be even less if all developers stop building as most of them are now doing. In the meantime rents will rise, and when they look expensive the pent up demand for ownership will jolt prices up again and this time even faster than before. Just sit tight and hold on to your flats and houses if you own. You will be in fantastic position again within a few short years

Posted by max | Report as abusive

Repeat after me: the house I live in is not a true investment.

Why? Ok, so lets say you weren’t an idiot and took out a mortgage which still runs beyond your retirement, and you’ll have 100% equity in your house when you retire. How do you turn an investment into cash? Sell it? Then where will you live?!! Ok, you downsize: say your house sells for 300k, and you buy a house for 200k giving you 100k. After fees, stamp duty etc, the money left might just keep you on the poverty line for 15 years.

Posted by Paul M | Report as abusive

help – I have an offer on a property we really like got a 20k reduction on asking price and now everyone seems to be saying that I could be 25% out by the end of another 2 years – if you don’t need to buy should you just wait but when do you know its time to get back in the market again…………

Posted by andy | Report as abusive

I read this article a couple of weeks ago, I have just managed to stop laughing.

Posted by nilay | Report as abusive

When the bank of England reduce interest rates next year, which they will and mortgage lenders think know the worst is over, then house prices will start to increase again. At that point, people will see there is even a greater shortage in housing stock than there was previously thus putting upward pressure on prices.
Also the Conservatives will come into power and try to kick start the housing market so it is quite feasible to believe house prices will be substantially higher in 5 years time. The truth is nobody knows until it happens

Posted by Devon | Report as abusive

Prices will rise in the long run – unless, of course, they fall.

It will make little difference as those who want to move on and buy can buy cheaper having sold cheaper (that’s the theory, at least).

Far more important is that interest rates fall and that building societies actually offer some decent products, without over-lending as in the past.

These “surveys” are pretty pointless – rather like the official inflations figues, which are wholly detached from reality.

Posted by Christopher Wright | Report as abusive

Prices will rise in the long run – unless, of course, they fall.


I hope and pray that I can keep hold of my properties throughout this turbulent period.

So much for the rental market being buoyant, 1 of my houses has been empty for over 2 months now with no sign of anybody moving in yet….

Posted by Paul Simpson | Report as abusive

Since almost all of us have to borrow nearly all of the money to purchase a house the only thing that is relevant to the amount you can pay is ‘how much’ can be borrowed. If someone was to offer you an interest free loan of any amount you wanted, without repayments required during your lifetime (you just leave them the house in your will) you could pay absolutely anything anyone asked you for a property. Conversely, if mortgages were unavailable, and we all had to pay cash, house prices would plummet to near zero. In the 1950’s when you could only borrow 3 X one partners salary house prices reflected this. Once this ‘control’ of the mortgage market was abandoned, and 6 X two salaries, or even self certification of ability to repay was introduced the market reflected this too giving us todays so called values. Lesson? ‘Uncontrolled availability of finance for house purchase = uncontrolled inflation of house prices.

Posted by doug palmer | Report as abusive