Sunday, March 28, 2010

UK House prices; the last two bubbles and Inflation.

As promised, I have got hold of UK house prices since the peak in 1989 and have a plot of raw house prices (Halifax) and inflation adjusted from 1989 to February 2010. The plots are at the foot of this post. Interestingly you can see that house prices have fallen by more this time (21.9%) than in the last crash (14.7%). Incidentally today’s prices are 17.5% below the August 2007 peak.


The last crash resulted in a bounce along the bottom for several years and did not return to it’s 1989 peak until March 1998. More interestingly however, prices adjusted for inflation (CPI) did not return to their peak until February 2002.

It would be unwise to try and predict where prices will go this time. They could bounce along the bottom for a few more years yet, as they did after the last crash. However one thing that we can perhaps be more certain about is that if we adjust for inflation then prices will not return to 2007 levels for a few years longer still.





1 comment:

  1. I love the graphs, especially the adjusted for inflation. However what is interesting is the natural tendency to believe the house prices should move above inflation, sure that may have been true of the last 30 years, but does it hold now? I think it is unlikely with a retiring baby boom, and no wage growth.

    So on that premise could we say that we could draw a straight line through the graph around the 175 index point, that would seem like about the right price :)

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