So is that the end of the property ‘crash’? Nationwide reported this week that its house price index was up by 0.7 per cent in January, already going some way to erasing the fall of 1.8 per cent it measured last year. The very similar Halifax index never even recorded a fall last year – it claims that prices rose by 1.8 per cent over the course of 2023, and by 1.1 per cent in December.
No one should take the Halifax and Nationwide indices too much to heart. They are based on data from a limited number of mortgage approvals – those handled by the lenders themselves – in contrast to the ONS house price index which uses data from almost every sale. As you can see from their divergence last year, Halifax and Nationwide often disagree with each other.
But several things should be clear. No, there has been no crash in nominal house prices, but in real terms, yes, they have fallen significantly over the past couple of years. This is back to the situation we had in the 1970s where a sharp real-terms house price fall around 1974/75 was disguised by inflation of over 20 percent. House prices stood still – while most other prices went up.
So is that the end of the ‘crash’? Quite likely, yes. The circumstances which caused the housing market to stall are now easing. It seems unlikely that interest rates will rise any further – even though a few members of the Bank of England’s Monetary Policy Committee voted for a rise last month and this month. Moreover, incomes are no longer falling in real terms: on the contrary they have been rising sharply. Affordability is getting a little bit better, although to put that into context the Nationwide points out that a 20 per cent deposit on an average house is equivalent to 105 per cent of the average gross income, a little bit down from the peak of the market in 2021 but higher than it was on the eve of the 2008/09 financial crisis. So, while house prices remain very high it is difficult to spot the pressures which would suddenly cause them to fall appreciably.
If UK house prices were going to crash they would sure have done so by now – as, indeed, they have done in Germany, where they were down 10.2 per cent in the year to the third quarter of 2023. What makes Britain so different from Germany? We simply don’t have a housing stock which is large enough to provide for the sharp rise in population. We built just over 200,000 new homes in 2022 while the population – fed mainly by migration – is rising at around 600,000 a year.
The housing market is often depicted as a battle of the generations. Older people want prices to rise so as to increase their accumulated wealth; younger age groups want prices to fall so that they can afford a home. Older people, especially conservative-minded ones, also tend to oppose current levels of migration. But the irony is that it is likely it was only high net migration – over 700,000 a year on the latest figures – which prevented the UK market experiencing a sharp fall like that in Germany.
