Sunday, 5 September 2010
Look further than the press releases – UK Property Market – August 2010 Update
I’m starting to wonder if we have reached the ‘Return to “normal”’ phase which will “soon” turn to ‘Fear’ as shown in my 4th chart. I’m making no predictions as this is not a free market and is badly distorted by government intervention to name but one. Anything could be proposed to try and prop the market up as we have seen time and time again over the past few years. All I’ll say is it’s starting to get interesting and the 1st chart and the 4th chart are starting to look similar. I will however make a prediction that “eventually” we will see significant falls because House Prices are simply unsustainably high. Nothing more and nothing less. The only question is how long I will have to wait.
As always let us now look at the data inflation adjusted. My 2nd chart today shows the Real (inflation adjusted) Nationwide Historical House Prices. Month on month real prices have gone from £168,963 to £166,507 which is a fall of £2,456 or 1.5%. Year on year Real prices have now turned negative at -0.1%. This chart also shows the current affordability of housing by comparing prices with average earnings. For this comparison we have to go back to June 2010 as that is the last publication data for Average Weekly Earnings, KAB9, which I convert into an Index for the chart. This shows as of June affordability continuing to decline. If Weekly Earnings can continue to increase slightly we might just see this reverse next month if House Prices continue in the same way that we have seen for the last 2 months. I must say a readjustment in affordability is badly needed for those who ever want to own an affordable house where you are not saddled with debt for the rest of your life. For June 2010 the KAB9 Average Weekly Earnings was £455 which is £23,660 per annum. That means by this measure the Average House Price is today 7 times that of the Average Earnings. In comparison back in January 2000 which is when my Average Weekly Earnings dataset begins the ratio was 4.6.
My 3rd chart shows how House Prices and Earnings are changing year on year. In June 2010 House Prices were still increasing at 8.7% year on year but as I mentioned above this is now down to 3.9%. Unfortunately in comparison for June 2010 Average Weekly Earnings are only increasing at 1.3% year on year, which is significantly less than inflation, meaning that as of June houses were still rising in price faster than earnings.
I personally continue to sit on the sidelines and watch. Who knows one day I might be able to buy a house for my family.
As always do your own research.
- Nationwide data is to August 2010.
- All earnings data (LNMQ, KAB9) is to June 2010.
- RPI data is extrapolated for August 2010.