Long term future of house prices

[Esceptico]

House prices have been massively inflated in the past couple of decades. There have been a number of factors: cheap money, population growth and changes in society such that many more people live alone. Looking forward money can’t get any cheaper and more likely to go in the other direction as some point, as so many people already live alone that probably won’t change significantly and population is set to decline as the birth rate is below the population replacement rate. So will house prices fall over the long term? As we shift to smaller family sizes, more singles, and an increasing proportion of pensioners then will larger houses in particular lose value? More people in flats?

[Wilmslowboy]

Perhaps they will decline but it a slim chance and likely to be in decades time, not near future.
It would take a massive event such as the introduction of wealth tax, or net emigration from the UK.




House prices have been on the rise for at least 50 years.
Uk population continues to grow, it may have slowed but it still saw an increase of an extra 400k people, in 2019.
There was a ‘surge’ in babies born about 10 years ago, who will enter the housing mkt in a further 15 years time.
Something like 1.5 million more homes now owned as second homes (rise in BTL, and holiday home ownership) than 20 years ago.

[LeoSayer]

Are house prices really massively inflated?

According the excel link below, there was massive growth from 1997 to 2007 but since then average house prices are around 10% cheaper in real terms despite record low interest rates during this period.

Of course, this is jut one chart that doesn't take into account local variations and affordability/wages.

It's impossible to predict the medium / long term impact from Covid, Brexit, Interest rates and inflation but from looking at that chart I wouldn't be put off buying now. What would stop me buying is the fact that my mental house price index is based on prices from 20 years ago so I find current prices (including my own house price) incomprehensible. The fact that my wages haven't kept pace with inflation is another factor.

https://www.nationwide.co.uk/-/media/MainSite/docu...

[98elise]

Esceptico said:

House prices have been massively inflated in the past couple of decades. There have been a number of factors: cheap money, population growth and changes in society such that many more people live alone. Looking forward money can’t get any cheaper and more likely to go in the other direction as some point, as so many people already live alone that probably won’t change significantly and population is set to decline as the birth rate is below the population replacement rate. So will house prices fall over the long term? As we shift to smaller family sizes, more singles, and an increasing proportion of pensioners then will larger houses in particular lose value? More people in flats?

Past couple of decades? When I stared in BTL about 10 years ago I was buying 3 bed places in the south east for less than 130k. I bought over a period of years was never short of options.

I bought a couple of flats on the coast for 26k each as well.

[KTF]

There is only one way that they are going and that is up.

[XJ75]

One thing most people seem to overlook is the relationship between house price and salary/income.

The ratio between house price and earnings has been slowly increasing, and if it continues to increase, who is going to be able to afford to buy houses to sustain high house prices?

[BobsPigeon]

From the 2008 up until this year I don't the UK average house price index was beating inflation was it? The 10 years before that were a bit mental but proved unsustainable which is what will happen again of we go a bit mental but I dont think we will, not near where I live anyway, they're building houses faster than you can say "sustainable development".

The question of affordability is illustrated below. We might be approaching a peak but historically it's not off the scale and is as much about inflation and credit terms as it is about the asset price

[Muzzer79]

XJ75 said:

One thing most people seem to overlook is the relationship between house price and salary/income.

The ratio between house price and earnings has been slowly increasing, and if it continues to increase, who is going to be able to afford to buy houses to sustain high house prices?

You're assuming that everyone will buy houses.

It's seen as an expectation now that, when you reach a certain point in life, you will buy a house, ultimately pay off the mortgage and retire.

Perhaps in the future, this will be the preserve of the wealthy. Property, like land, will be for the few and we will return to being a nation of renters, much like 60 years ago.

Or, we could follow a model like Japan, where mortgages are over a longer period and are passed down generationally.

[sociopath]

House prices have apparently been unsustainable since before I bought my first flat in 1987, the rise since has generally been continuous with an occasional blip.

What's different now? I'd say nothing.
As long as demand outstrips supply prices won't fall, except for more blips.

[Ronstein]

Lots of interesting stats here, particularly the decline in first -time buyers

https://www.ons.gov.uk/peoplepopulationandcommunit...

[Wacky Racer]

KTF said:

There is only one way that they are going and that is up.

That's what they said in 1990.

I sold a bungalow for 90k back then.

Mortgage rates briefly went up to 15%.

The new owner struggled to get 65k for it eighteen months later.

Prices can only go up so much then first time buyers will be priced out altogether.

[BobsPigeon]

XJ75 said:

One thing most people seem to overlook is the relationship between house price and salary/income.

The ratio between house price and earnings has been slowly increasing, and if it continues to increase, who is going to be able to afford to buy houses to sustain high house prices?

It really hasn't all that much though as the chart above shows, as it a two way things as well it can move either direction very quickly, if we get an asset fuelled or monetary fuelled inflationary period and the demand for housing slows due to interest rates you could quite easily expect a 7 to 10% movement per in the affordability index in very quick time.

The first 15 years of a mortgage is hard for everyone and always has been.

[vulture1]

Wilmslowboy said:

Perhaps they will decline but it a slim chance and likely to be in decades time, not near future.
It would take a massive event such as the introduction of wealth tax, or net emigration from the UK.




House prices have been on the rise for at least 50 years.
Uk population continues to grow, it may have slowed but it still saw an increase of an extra 400k people, in 2019.
There was a ‘surge’ in babies born about 10 years ago, who will enter the housing mkt in a further 15 years time.
Something like 1.5 million more homes now owned as second homes (rise in BTL, and holiday home ownership) than 20 years ago.

What was the reason for the baby surge 10 years ago?

[timberman]

sociopath said:

House prices have apparently been unsustainable since before I bought my first flat in 1987, the rise since has generally been continuous with an occasional blip.

What's different now? I'd say nothing.
As long as demand outstrips supply prices won't fall, except for more blips.

I'd say the biggest difference now is the lack of new ways for lenders, house builders to try and service the debt required to buy a house, at the end of the day houses have to be affordable and that's governed by how much people can afford to pay

Back in the 80's when we were looking for our 1st home the maximum a bank would lend for a mortgage was 2.5 times our highest salary + 1 x the other salary over a maximum of 25 years
at that time a typical 3 bed semi in our area was about £20-25k and our wages at the time would have been around £6k

with interest rates being what they were this was still a struggle to pay and meant making sacrifices to achieve it.

since then house prices have risen massively and far outstripped wages,
if the maximum mortgage was still limited to 2.5 times salary then hardly anyone would be able to afford a house without having a massive deposit,

today interest rates are at a point where they can't go any lower and the mortgage to salary ratio has increased to a point where I can't see it going any higher,
in fact i'd say the government have backed themselves into a corner with interest rates,I'm sure they'd love to raise them a bit, but with so many people relying on the low rate to actually make their massive mortgages affordable if they did raise them,
once their deals had finished loads of people would end up homeless,

and it seems every time they make these changes to try and improve affordability all it ever does is push values even higher as sellers just see an excuse to increase the asking price,

just look at what happened with the stamp duty holiday, all people did was add the saving onto their asking price and push up prices once again, and I doubt anyone apart from people down sizing have saved any money at all.

If prices keep increasing there will reach a point where people can no longer afford to service the debt especially 1st time buyers, at which time someone will have to come up with a new way to make that debt more affordable or prices will stagnate and only increase inline with inflation.

no doubt 30, 40, 50 year mortgages will become the new norm.

[ARHarh]

Wacky Racer said:

KTF said:

There is only one way that they are going and that is up.

That's what they said in 1990.

I sold a bungalow for 90k back then.

Mortgage rates briefly went up to 15%.

The new owner struggled to get 65k for it eighteen months later.

Prices can only go up so much then first time buyers will be priced out altogether.

yeah but by 1995 it would probably have been £150k. They should have waited before selling.

[Simpo Two]

Muzzer79 said:

Or, we could follow a model like Japan, where mortgages are over a longer period and are passed down generationally.

Which seems effectively the same as renting, except the landlord is a bank/building society.

[sociopath]

ARHarh said:

Wacky Racer said:

KTF said:

There is only one way that they are going and that is up.

That's what they said in 1990.

I sold a bungalow for 90k back then.

Mortgage rates briefly went up to 15%.

The new owner struggled to get 65k for it eighteen months later.

Prices can only go up so much then first time buyers will be priced out altogether.

yeah but by 1995 it would probably have been £150k. They should have waited before selling.

Not wrong.

My flat cost me 50k in 1987, went up to 65 then dropped back to 50k.

It's now valued according to Zoopla at 350k.

Timing is everything.

[s1962a]

If things carry on the way they are then I dont see much change. They will trend upwards but have short term stagnation / downtrends based on the economy. If we have some big things happen, like a land tax or it becomes prohibitively expensive to own larger houses then maybe they will become less desirable compared to smaller properties. I don't see this happening though - which government is going to want to penalise homeowners?

I do wonder what the next generation will do for housing once they move out of the family home. If they don't have bank of mum and dad or a high paying job, will they really pay extortionate rents to live in tiny places?

[Ari]

KTF said:

There is only one way that they are going and that is up.

I'm guessing you're too young to remember the early Nineties!

[mike9009]

I see it largely depending on immigration policy in the following post-brexit years.