UK House Prices, Socionomically Observing

There has been a lot written about UK house-prices and as to why they will keep rising in value, with a few of the favourite quotes as follows, with my response in blue:

  • The UK is an island so there is limited land…..True, but so is Japan and the credit bust of the early 1990s didn’t stop land values crashing by 80%!

 

  • Immigration has placed a huge supply/demand imbalance on housing, thereby under-pinning price inflation…..Again true, but so did Hong Kong island, including the Vietnamese boat-people, but that didn’t stop average home prices crashing by 75% following the 1997 Asia credit crisis!

 

  • They are not building enough homes…..Maybe, but consider the facts between “somewhere to live” against “a vacation home or as a buy-to-let investment.”

 

Fact 1: In the lead-up to the 2007 US housing crash, 40% of all home sales were for “speculation,” not for somewhere to live, and furthermore, most of it was funded by debt.

 

Fact 2: According to upmarket agents, Knight Frank, in the year to March 2015 over 50% of all London properties valued over £2m went to overseas buyers.

 

Fact 3: The Nationwide, one of the UK’s largest lenders against property, sates that buy-to-let lending has represented an unusually large percentage of total loans of late, possibly 25% of the total loans extended during March as they rushed to avoid the increased taxes to be introduced in April.

It’s time for a picture:

 28 July 2016 Blog 1

Exhibit 1 compares UK mortgage lending to June, fresh out of the Bank of England earlier today, against average house prices to July, courtesy of the Nationwide earlier this week.

You will note the sharp drop in lending on the right-hand side of the chart. Whilst part of that can be put down to the “Brexit uncertainty” mortgage demand has been falling for quite a few months before that.

Which leads on to exhibit 2:

28 July 2016 Blog 2

This chart compiled by The Royal Institute of Chartered Surveyors’, and included within the Nationwide’s most recent monthly report, shows the sharp fall of both “new instructions” and “new buyer enquiries,” which had been trending lower since way before the referendum was even announced

 
I’ll end with a “best kept secret,” from those good folk at “positive money:”

 
Between 1997 and 2007, that is the 200% bulge in house-price inflation shown within the first chart above, the UK population grew by 5%, the housing stock increased by 10%, whilst mortgage lending grew by 370%.

 

And that, dear reader is the common denominator between the three islands mentioned.

 

 

 

 

 

 

 

 

 

 

 

 

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