Friday, 28 March 2008

House prices down almost 4 percent

(click on the chart for a sharper image)

If you want to understand what is happening to house prices, you must look at a chart. Today, the Nationwide produced their monthly survey of house prices. Unfortunately, the media reported this data by producing a battery of misleading percentage growth numbers.

The plan facts are that the Nationwide data shows a substantial nominal price drop since October, when prices peaked. In percentage terms, prices are down almost 4 percent lower than the peak.

If prices continue to fall at the rate we have seen over the last five months, then we are likely to see an 8.7 percent annualized nominal fall in prices.

Assuming that the RPI inflation rate remains at 4 percent a year - a reasonable assumption since it has been at that level for around two years - then in 12 months time, the real value of housing is likely to be about 13 percent lower than today.

The crash is here.


Anonymous said...

This time, Alice--well, this time I hope you are right at last!

Anonymous said...

I too really really hope you're right. Mind you, given that the UK's housing crash is occuring from a bigger bubble than the US, with more leveraged buyers, and when the credit crunch is already underway and attitudes have already changes (rather than the US's), there's really plenty of reason to think the fall is going to pick up pace.

The US crash was partly slowed by having buyers who thought there was an early bottom, and by banks that still offered crazy mortgages. The UK buyer is already wary and the UK banks have already pulled the lending.


Alice Cook said...


The idea that the US crash has suddenly slowed is due to a misunderstanding about seasonally adjustments. Although I haven't looked at the data myself, I have read some realiable accounts that says the non-seasonally adjusted data for housing sales show continued declines in the US.


Anonymous said...


Sorry, I didn't make it clear. What I meant is the beginning of the US housing crash was slow - i.e. banks, buyers and sellers were all virgins to the problem and thus there was a "readjustment" phase. I think the UK has read enough and seen enough balance sheets to just get straight on with the crash without all the preamble of uncertainty. Back in November people still had a will it/won't it discussion. Now that the UK is in it everyone knows it's just a question of how far / how fast