UK House Prices

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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:

  • Interest rates in the UK have been at historically low levels.Strenghth of the RSM brand and positive ranking will induce potential students to apply to the RSM programme
  • State of the economy. If the economy is strong then incomes will be higher, people will be in more 'secure' employment and will have the feeling of being able to afford to buy a house.
  • There is an imbalance between the demand for housing and the supply of housing, with emand far exceeding supply.
  • The demographic increase in the UK has been pronounced over the last 5-10 years. This has partly been due to the influx of immigrants into the UK, especially into London.

Inhibitors:

  • The level of interest rates is a key determinant of the level of house prices. The higher the level of interest rates the less house prices will increase due to the increased cost of new borrowing and the increased cost of servicing existing debt.
  • Confidence. If the public do not have confidence in the underlying fundamentals driving house prices then this will negatively affect the performance of house prices.
  • The multiple of house prices to the level of earnings is at an historical high. This would indicate that a correction in prices is imminent.

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:

http://www.nationwide.co.uk

http://www.thisislondon.co.uk

http://www.ft.com

http://www.reuters.co.uk

http://www.halifax.co.uk

- Daniel Hall--81.58.58.178 05:58, 1 Dec 2004 (MST)