Inflation made house prices go from £3,000 to £30,000 to £300,000 - so how will house prices fall?

[SunnyV]

Please can someone explain it to me?

If inflation makes the value of money less - then surely house prices will continue to rise?

Not if interest rates rise. That will reduce the amount people can borrow which will push house prices down.

House prices are not necessarily- in the medium to short term - necessarily pegged to the price of items that prices inflate for. It is quite feasible thst house prices go down when the prices of essential items go up - less mortgage availability, people just choose to stay where they are etc.

if wages dont keep up with inflation there is less money for people to buy houses with. That’s why it’s important in this current trend that inflation is. It coming from a wage increase spiral.

but ultimately I can’t see house prices decreasing in real terms (ie taking into account inflation) in any meaningful way. There aren’t enough houses basically.

but it’s interesting to see what’s happening in Australia for example - after a pandemic boom prices are going down. But I would be amazed if in five years they aren’t higher than now.

ifni was looking to buy now I’d probably wait a few months. But I wouldn’t wait for a crash that won’t come…

Although house prices have risen, the value of the £ has changed. £1 1000 years ago is not the same as £1 today. The first value of my last house was about £4000 - £4000 was 'worth' a lot more than it is today.

I've not explained it well, but you can't directly compare the numbers.

They may stagnate or fall minimally but I can’t see a massive drop coming. It’s down to supply (lack of) and demand.

@SnowdropsInSpring for sure - but the real price of housing adjusted for inflation has increased. Ie house pieces have increased a lot more than inflation

@SnowdropsInSpring ie you totally can compare the prices - you just have to adjust them for inflation

House prices are now largely driven by the investment market which isn't affected so much by mortgage rates etc and not at all by supply and demand. So I doubt anything much will happen to them.

people will always need houses. there are a finite number of houses. scarcity drives market value

the growth in house prices may slow but houses aren't going to drop significantly in the long term, just like in the last credit crunch.

the only thing that would make house prices plummet would be a social change in the norms of the way people live in the UK - multiple generations of families sharing houses for example.

Bricks and mortar always increase over time becaude the value of money does. I think you’re not alone in not understanding it.

100 Pounds in 1960 is the same as 2500 today. That’s why folks who don’t understand it think folks bought cheap back then.

One reason for a sharp increase in prices, was when 2 salaries were taken into account by mortgage lenders. Previously they’d only take one into account - usually then the higher (usually male) earner.

Five or six years ago a dd paid just over 100 times the price the former owners had paid in 1971 - £3k to £305k.

An older friend told me how her mother had urged her - I think in the 60s - to buy one of the Georgian/Queen Anne, relatively small terraced houses in Peckham that were then going for £1k.
She didn’t feel like buying then, but did a year later, by which time the going rate was £2k. (Almost certainly needing massive updating.)
She’s still got it - would probably sell for £1m now.

@Fushiadreams the price of housing was cheaper in real terms in 1960 🤷‍♀️

Even if house prices drop in the next few years it won’t make it any easier to buy a house for first time buyers etc as the interest on mortgages will increase.

For example we bought a house in 2018. £490000 with a 50k deposit over 30 years. Our monthly replacements were £1600. I’ve just put in exactly the same details into the mortgage calculator with the current rates and if we did it today the monthly payments would be £2000 a month. That’s £400 a month increase, purely in interest. The bank would never have lent us as much so even with lower house prices you will still need a big deposit and the monthly repayments will be the same with a house that is lower priced. I hope that makes sense.

My first house, a 30s semi, cost £10,000. Beer was 20-25p a pint. So, the house cost 40-50,000 pints.

In 1977, an eastham pyramid aluminium frying pan cost £9, and in 1992 an Aga s/steel pan cost £72. However you priced them, in either beer or petrol, the 1977 one was dearer. Strange but true.

If it was simply inflation with wages in all sectors keeping up then house prices would go up.

But house prices are impacted by wages (which can’t keep up with inflation in the short term now), interest rates, how many people are in or out of work, bank lending risk appetite (impacted by view of the economy and future interest rates), individual risk appetite (can I afford it if interest rates go up to 10%? Is my job secure? Can I pay the gas bill?), people losing their jobs because no one has any spare money to spend on whatever they’re selling, etc etc

And the back of England is putting interest rates up to try and control inflation- that usually works because interest rates go up and people spend less on goods and services, demand cools and prices don’t increase by so much. It’s a difficult balancing act.

House prices in the U.K. have been resilient because of huge demand, low interest rates for years, gone from one to two earners, and banks increasing what you can borrow (a 30 year mortgage on 5 times pay plus a deposit from the bank of mum & dad was not a thing when I got my first mortgage in the 90s - 3 times pay over 25 years and no one had any help from parents).

The demand is still there, the bank of mum & dad is often still available, and banks have eased affordability requirements, and the wealthy who aren’t mortgaged to the hilt and keep their jobs will be relatively unaffected, so maybe prices won’t fall too much. Or maybe they will short-term.

Still relatively cheap though compared to what people earnt. My grandparents bought a house in 1965 for £2k. That's the equivalent of around £27k now. Now, my grandad was the only one working and he earnt £90 a month (£1080 a year) but still that meant the house was less than twice his earnings a year. They borrowed less than a full years salary on a mortgage (as they sold their previous house for the deposit).

Same house (that just my very old gran now lives in) was recently valued at £600k. If DH and I wanted to buy it, our combined household income is about £90k. We would be borrowing more than five times our annual income to buy it (with a 10% deposit)

That's the difference.

The money value of anything comes from the value of its future cashflows or the intrinsic value of wanting - or needing - to physically enjoy it.

House price increases are partly due to the investment market, which due to the 1988 Act set the seeds for free market rents. Rises are due also partly of the need for housing and lack of adequate supply. The latter is controlled to some extent by developers' land-banking. This is a cartel mentality designed to keep house builders' profits stable.

Shudder remembering my 15% mortgage rate! ( and the amount of repossessed houses being sold at low prices just so the BS could recoup some money- leaving owners with massive debts).
Awful times.

@Qik agree that land banking leads to delays but the number of new dwellings has outstripped the number of new households every year for the past fifteen years at least. We do actually have plenty of residential properties in the UK - there is a surplus in fact.

@StorieAnna god, my parents keep going on about the 15% mortgage time lately. "Your mum had to go and get a job!" says my father, like it was the worst thing in the world. She worked a couple of hours a day as a dinnerlady. "It was a solution. Now I'm not suggesting you do that of course " says my father ... just as well, given that I already work 40 hours a week same as everyone else.

How is there a surplus? The NPPF target is 300,000 new homes a year for 10 years. We are halfway or more through and the average annual build is around 220,000 or so. We also have more single households through higher divorce. If we have enough then why was the target set at 300,000? Kate Barker also things differently.

True but lmy dad paid £6k for his house in the 70's today's equivalent value would be approx 75k yet his house is worth 120k even allowing for value it's definitely higher.

You've just described straightforward inflation, which pretty much everyone does understand. The rise in house prices is more complicated than that though. If everything had increased in price at the same rate as house prices, your weekly shop would cost thousands of pounds.

@Qik the housing market isn't in the business of housing people. It also serves other purposes. Around six million people have multiple properties. A million properties owned in a roughly 75/25 percentage by domestic/overseas owners are clear second properties, ie not bought for the purposes of renting out and unoccupied most of the time. So there are plenty of actual properties. But ability to own them is skewed. Money isn't worth the same as it was and investing doesn't work the way that it did at the start of the century. So investments across all asset classes including property play out differently now, with little to do with scarcity value.

Sorry, isn't just in the business of housing people.

@GuyMontag can you explain more about what you mean about scarcity value not being relevant any longer?