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House prices – what’s really changed in 50 years?

So in terms of actual pounds, it’s now around 65 times higher, but that doesn’t really mean much, since the cost of just about everything (including people’s wages) has risen by a huge amount since 1959.

In real terms (looking at prices in terms of affordability), however, the average price has risen by 273%, so it’s almost four times as high as it was 50 years ago.

This is the figure that really means something, since it takes into account the effect of 50 years of inflation and gives an idea of how much today’s average price actually feels like.

What really counts, of course, is the cost of a house in relation to people’s incomes (and their other expenses). In the last 50 years:

– House prices have increased by an average of 2.7% per year, but
– Real average earnings have increased by just 2% per year.

This is what explains the ‘almost quadrupled in real terms’: on average, house prices have increased a fair bit more than salaries in every year since 1959. Over half a century, that 0.7% difference per year really adds up.

What’s next?

Halifax’s press release also mentions that ‘Pronounced cycles have been a key feature of the housing market since 1959’. It lists 1971-73, 1977-80, 1985-89 and 1998-2007 as periods in which house prices rose rapidly in real terms – and points out that every one of these period was followed by a substantial fall in real terms. In the 90s, for example, house prices fell by 22% in real terms in just one decade, making this the worst decade for house prices.

These days, the question ‘Where are house prices going next?’ is a constant source of debate.

– One side points out, for example, that house prices are simply too high in relation to the money people are earning. Plus, they say, many people bought properties they couldn’t afford and have been struggling ever since – and we’re sure to see a lot of repossessions when the Bank of England’s base rate goes up (as it must, sooner or later) from its all-time low of 0.5%, taking mortgage rates up with it.

– The other side points out that it’s all about supply and demand. As long as lots of people want to buy and there aren’t many properties on offer, it’ll remain a seller’s market, in which buyers have to compete to do business with sellers – not the other way around. An important factor here is the number of ‘new builds’. As Halifax found, there’s been a big drop-off in the number of new houses built – throughout the UK, there were 44% fewer houses built in 2009 than there were in 1959.

This is a guest article from financial solutions provider Think Money. Click here for free advice on a range of debt solutions including debt management, debt consolidation loans and IVAs (Individual Voluntary Arrangements).

One thought on “House prices – what’s really changed in 50 years?

  1. Major Landlord says:

    This is an excellent article that largely confirms my own view of what has been happening in housing. Interestingly when I started my own property business in earnest in 1998, my business plan called for 3% pa inflation in values. Seems like I got it pretty well right!!

    As far as the arguments about the effects of supply and demand and affordability go, I think supply and demand is a spurious argument used by house builders and vote-chasing governments to justify new building programmes. The reality is – as I say repeatedly – that there is nothing like the level of demand for newbuilds that we are frequently told. There are empty properties all over the UK. There is only a shortage of people who can AFFORD to buy at inflated new-build prices that bear no relation to building and land costs. Any argument that draws on building levels of the 1950s is grossly and deliberately misleading: we were, after all, replacing thousands of homes that were destroyed by WW2 bombing.

    As for affordability, the sad fact is that we are stuck with today’s ratio, or an even higher one. There may be periodic readjustments in values when we have a bubble, but there will never be a readjustment that will do more than counteract the effect of the previous bubble. We may end up with life-long mortgages, or we may have to re-invent old-style not-for-profit building societies that lend at lower margins, but we are not going back to 1950’s affordability, or anything like it. When values fall dramatically, only those who MUST move do so. The rest sit tight until they can sell for near their own asking price. That’s what keep prices steady or rising, and always will.

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