UK House Prices

Description:

The UK housing market has witnessed exponential type price increases over the last 5 years. An average two bedroom property in London purchased in 1999 will now have doubled in value. It is necessary to understand the driving forces behind this trend to determine whether now is a good time to purchase property in the UK.

Enablers:

• Strenghth of the RSM brand and positive ranking will induce potential students to apply to the RSM programme
• Weakness of the economy. There is a negative correlation between the economic cycle and the number of people studying at business school. The weaker the global economy, the more applications RSM will receive which means that it will have a larger pool of applications to select the best students. Obviously, the better the quality of students entering the programme, the better the ranking of RSM will become. To coin an over used MBA cliche: "Garbage in, Garbage Out".

Inhibitors:

• The variety and quality of other MBA programmes offered by US and European business schools will have an inhibiting effect on the performance of the RSM ranking. The more competition there is in the post graduate educational market, the harder it will be for RSM to rise up in the rankings.
• Negative Rankings. The recent poor performance of RSM in some of the more prestigious rankings (I do not count Intermedier as a prestigious ranking as it only selects Dutch schools for its population)undermines the qulaity of the MBA programme and sends a strong signal to potential MBA applicants.

Paradigms:

• (Old)- House prices will continue to soar due to demographic factors. Due to the expanding population of the UK, and that of London in particular, it is argued that there is an imbalance between the demand for housing and the supply of housing. It is precisely this imbalance that is the root cause of the price increases.
• (New) - The UK housing market is a market like any other. It is prone to bubbles and crashes and has recently experienced price increases that indicate a bubble is occurring. The market hinges on confidence and when this confidence diminishes then the market will collapse.

Experts:

Please add any comments to the links below. See John Wrigglesworth of Nationwide for comments on the UK Housing market. Do not listen to estate agents. They are not experts. They are full of s*@t.

Timing:

• As house prices are highly correlated to interest rates it is necessary to re-assess the housing market on a monthly basis as thi sis when the Bank of England meets to discuss and set interest rates for the next month. There will be a lagged effect on house prices of 2-3 months after the decision but the effect is nonetheless strong.

Web Resources:

www.nationwide.co.uk www.thisislondon.co.uk www.ft.com www.reuters.co.uk www.halifax.co.uk

- Daniel Hall