Chichester Property News: uk house prices over the years

Showing posts with label uk house prices over the years. Show all posts

Thursday, 22 December 2022

House prices up 14,344% in seventy years

In 1952, the average UK home cost just £1,891. Seventy years later and the average property in the UK is now worth £273,135 - an increase of 14,344% (meaning you could have bought 143 homes in 1952 for the same money as you can now)!

Back then the UK was mostly an island of renters though, with only around four million owning their own home, compared to 15 million homeowners today. Buyers in 1952 were typically paying four times the average salary for a home, compared to eight times today’s average salary now.

It’s not just property that has increased in price though; with a pint of milk costing 4p and a pint of beer costing 9p back in 1952. That does mean though that property prices have outpaced the wider rate of inflation by some margin.

Of course, that meteoric house price growth has not been linear, as the below chart shows:

It seems unlikely we’ll ever see such extravagant house price growth again. To do so would mean the average UK home costing close to £40million in the year 2092! Then again, the way the financial markets have swung about this year, hyperinflation some time in the next seven decades could well make that impossible looking figure a reality.

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Thursday, 8 July 2021

Have house prices peaked?

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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Thursday, 13 February 2020

Which decade was best for house prices?

I recently wrote about how it had gotten tougher during the 2010’s to get on the property ladder, as house prices rose by a third throughout the decade. This wasn’t the highest house price growth seen for any given decade though; far from it in fact. Which decade do you think was best for house prices (or worst depending on whether you were on the ladder or not!)?

Here’s the average cost of a home in the UK at the start of each decade to help you out:

1952: £1,891
1960: £2,170
1970: £4,312
1980: £21,966
1990: £61,495
2000: £74,638
2010: £162,116
2020: £215,925

Looking at the figures showing average house prices over time, most people conclude that the ‘noughties’ had the most growth. With prices shooting up from £74,638 to £162,116 in a decade, the rise of 117% was certainly spectacular. And it’s true that the increase of £87,478 is the largest monetary gain of any decade…but in relative terms, it was actually the Seventies when prices really started to rocket; shooting up 409% in a decade.

It’s very easy when looking at the numbers or a graph to see the huge increase in absolute terms and forget that an increase from 100 to 200 is actually the same in relative terms as an increase from 1 to 2. In fact, the 2000’s and 2010’s were both below the average percentage increase each decade on record has seen.

This made me recall the story my dad had told me when I moaned about how “lucky” he was for being born as part of the ‘baby boomers’. He reminisced how he had bought his first home in 1976 for £12,250, taking out a £8,250 mortgage. “See, you only needed a £4,000 deposit” I scoffed! Before being told he’d saved everything he could to accumulate what was more than the average annual salary at the time and around a third of the value of the property. Plus, he added, my generation haven’t had to deal with 10% unemployment and 15% interest rates.

Still, I said, buying a house for £12,250 seems something of a no-brainer! And yet at the time, my mum’s brother had warned my parents how that £8,250 mortgage would be “a millstone around your neck for the rest of your life”.

One thing my dad did agree he’d been lucky on was not taking out an endowment mortgage! For fear of opening sore wounds amongst some readers, I’ll end my trip down memory lane there…

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