Will house prices fall by 50%?

publication date: Feb 10, 2010
author/source: Kate Faulkner, Property Expert and Author of Which? Property Books

Will house prices fall by 50%?

This is a popular view that is often headlined by the media about the property market. Interestingly, when you look into the people and companies that give this prediction it’s worth bearing in mind that they are often financial speculators who invest in stocks and shares and other financial vehicles, or they are economists who see the property market very differently to the average buyer and seller.

So be warned when reading these reports, there is much bias around predictions that property prices will fall as there is from the property industry that prices will rise!

So what are the facts behind this prediction that property prices will fall by 50% and what are the chances that it WILL actually happen?

The easy way to answer this is:  would you as a seller, sell your property for 50% less? And would your friends and family, or would they just stay where they are? Just ask around and think through could you afford to sell at a 50% less than it’s worth today or would you be better off staying where you are as you consider it to be a roof over your head rather than a financial investment that you expect to pay out?

What the Property Doom and Gloomers say!
We recently came across a document that claimed property was going to fall by 50% and have investigated why they predict this.

Here are the reasons they say it will and they go even further and claim that you the consumer are having information ‘hidden’ from you.

Claim One
The document relates to a tracking of something that is ‘unofficially called the Affordability Index’ and that this chart is ‘always viewed as the KEY indicator of the health of the UK property market’.

Is it true?
Both of these statements they make are, in my view, complete rubbish. There is an index called the ‘affordability index’, here it is and it’s tracked by various organisations and regularly published by the Halifax on their Media section'. There is also the Roof Affordability Index from Shelter and CML’s thoughts on affordability.

This information proves that their very naughty claim that the affordability index is something:-

“That’s something the banks, the government, the estate agents and the rest of the property industry didn’t want you to see.”

Secondly this being the ‘KEY indicator of the health of the UK property market’ is a bit overstating the facts. It is ONE of the things that companies look at, but by no way the ‘be all and end all’ they suggest! The real driver of property prices is supply and demand for a particular property on a particular street.

Claim Two
“Property prices started crashing in October 2007. And people who ignored the affordability warning saw the value of their investments slashed by 21% in just 16 months.”

Is this fact or fiction?
To be fair, this is fact if you look at Land Registry data and average all sales out over a certain period. However, it doesn’t mean that ‘the value of investments were slashed by 21%’. For example, the house next door to my mum’s sold for 10% less than it was worth during its peak. I also know of many investors that have bought and made a lot of money on property in this time based on positive cashflow from rents as well as capital growth.

Claim Three
“How handy would it be to use the hidden Affordability data to get an accurate indication of the state of the market?”

Urrr, see above, we’re not sure who they think is hiding this data or who the “secret” “city contact” is who has provided them with his/her own Affordability Index. Shame they didn’t just read lender press releases!

Claim Four
“buying property in 2010 is a MUG’S game...”

True Statement or False?
Well this kind of assumes you are buying a home for profit. Basically they are saying that if you have a partner who has died, then you shouldn’t sell your home and move somewhere else. Nor if you have a one bed flat and twins on the way should you sell your home and then buy a bigger one.

And they say this to someone who has finally seen a home come up for sale which is:-

1. Somewhere you have always dreamed of living
2. Is in the place you have always dreamed to live, but couldn’t afford before the crash
3. Is now within your financial reach - and of course your income is secure or you are a cash buyer
4. You intend to live in the property for the next five, ten years or more

They are basically saying ‘you shouldn’t buy’. Now, I don’t mind anyone contributing sensibly with good evidence to the argument that the property market is going up or down. The facts are that no-one is quite sure at the moment.

However, this kind of scare mongering is actually worse I think than anything the property market is producing at the moment! This information it appears, is not at all independent; they appear to be trying to put fear into you about property prices so that you invest in THEIR financial products and services.

Claim Five
“Affordability index was nearly 7 x average incomes in 2007 and is now just under 6 x” and “a score of 4 to 4.5 is still a BUY sign but it’s also the first warning that the market might be about to get overheated”

Well the official published affordability indexes do agree that ‘4’ is the long term average, but they state that there are now 39% of areas which reach the 4 x long term average. In 2007 it was only 6% of areas. And it depends which area you are in. For example 94% of homes in the North East were affordable (ie met the 4 x calculation); 81% in Yorkshire and Humber; 77% of those in the North West and 69% of homes in the East Midlands.
So I think their claims aren’t quite right. I also personally think that affordability measures ARE NOT the best way to measure the performance of the property market anymore. Read my article on affordability 'Has the Credit Crunch made Homes Affordable Again?'.

For the truth about what’s happened in the property market over the last 50 years read the following information from the Halifax Years of Housing in UK.

So, 'Is this the trend of property prices in a crisis?'. To find out what further 'claims' have been made by this document, read the second part of this article!

If you have a property question that needs an independent and unbiased answer, then email us at enquiries@designsonproperty.co.uk or tel 0845 838 1763.

Need help with a property problem? Have a question? Why not call Designs on Property on 07585 897128 or Contact Us via email.
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