All the chatter about house prices at the moment is of record increases, with prices up 13.4% over the past year according to Nationwide data. It seems the pandemic and the (rather unnecessary) slashing of stamp duty has stimulated the housing market. As the furlough scheme and other government subsidies wind down though, along with the stamp duty relief also ending, some are saying house prices have peaked.
Whilst history cannot predict the future, I believe it can give an indication of things to come. And so, I put it to you that history suggests house prices will be higher come the year 2030 than they are now…
You see, whilst we’re only 18 months into the current decade, if house prices were to finish the decade where they are today, the 2020’s would have witnessed the lowest growth in recent history. Statistically speaking, that is unlikely.
Here are the figures dating back to the 1960’s as to each decade’s house price growth:
With house prices in the UK currently averaging £242,709, they have increased 12.4% so far this decade. The average growth over the past six decades is rather skewed due to the 1970’s, but even matching the decade with the lowest growth on record (the 1990’s) would see house prices end this decade at £262,133. It would take some doing to beat the 1970’s huge 409.4% growth though (which came about due to high inflation), with average prices needing to surpass the £1m mark in the next eight years if this were to happen!
Whilst extrapolating forward from the past may bring up seemingly fanciful figures, bear in mind it would have done when done in the past too - and look what happened since then! Furthermore, there’s typically a reason, which only becomes clear in hindsight, as to why things pan out as they do. In the case of house prices, I believe it is the relative affordability due to low interest rates which will be the ‘obvious’ reason house prices continued on a similar trajectory in the future as they have in the past.
In October 1981 the base rate was at its highest ever (15%), after which rates decreased before increasing again to a similar level by 1991. Since then, the base rate has gradually decreased to the record low of 0.1% we see now (rates were close to 6% in the run up to the credit crunch). This means there will be fewer people falling victim to repossession as mortgages become relatively ‘cheaper’, whilst mortgage spend becomes more affordable despite house prices increasing (put it this way, it costs the same to service a £100,000 debt at 4% interest, than it does a £200,000 debt at 2% interest).
This simple equation is why people are now spending just 36% of their income to service a typical 80% mortgage, compared to spending 62% in 2008 and 75% of their earnings in 1989. If interest rates stay as low as they are now, I believe there is still plenty of scope for people to afford higher mortgage payments and subsequently they will be willing to pay a higher price for their property.
What do you think? Do you expect house prices to continue increasing like they ‘always do’? Or do you think history will show 2021 as being the year everything started to unravel?
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