While doom and gloom still hovers over the UK property sector, with many analysts expecting substantial falls during 2009, is there any comparison between the current situation and house price movements since the Nationwide House Price Index began in 1952?
We have reviewed the data from 1952 onwards and it does not make very encouraging reading, although it is interesting to take a look back at how the UK property sector has developed over the decades. The house Price index has been rebased to the fourth quarter of 1952 with an index value of 100 and subsequent average UK house prices have been reviewed on a quarterly basis.
The 1950s appear to have been a fairly quiet period for UK property prices with the rebased index in the fourth quarter 1952 rising from 100 to 114.8 in the fourth quarter 1959 resulting in a rise of just 14.8% over the period.
The index began the 1960s at 115.8 and ended at 228.1 for a very impressive rise of nearly 97% over the period – this was perhaps the start of a significant boom time in the UK property market. However as interest in the UK property market began to develop, nobody could have guessed the massive swings which were to occur in later years!
The Nationwide UK House Price Index started 1970 at 231.5 and ended the decade at 1161.8 for an amazing return of 400% in just 10 years. As many people began to consider property as a home for their investment funds we saw the creation of a substantial property market which was inevitably to attract attention from worldwide property investors.
As the boom times continued to roll in the UK we saw a significant increase in the 1980s from an index level of 1199.4 to 3252.4 resulting in an increase of 171% on the average house price in the UK. However, the 1990s would spell the end of a sustained period of growth for the UK property sector as recession hit the UK and had a severe impact.
The 1990s began well enough in the first quarter with the revised index standing at 3151.5 and property investors looking ahead to the future. While the end of the decade saw the index standing at 3947.5 for a total return of 25.2% this did not tell the whole picture of the 1990s!
Between the first quarter of 1990 and the first quarter of 1993 house prices in the UK fell nearly 16% and many homeowners were plunged into serious financial trouble. This was perhaps the first wake-up call for nearly 40 years although as we have seen in more recent times maybe lessons were not learnt by the home owning public of the UK.
From 2000 onwards
Even though we have seen substantial falls in UK house prices in more recent times, from the first quarter of 2000 to the final quarter of 2008 house prices in the UK rose by a very impressive 102%. However, between the peak of the UK house price index in the third quarter of 2007 (9738.6) and the final quarter of 2008 (8294.5) the index fell by 14.8% and many analysts expect falls to continue for many months to come.
What can we learn from historic house price movements in the UK against the current situation?
Unfortunately there is very little we can learn from historic prices from 1952 onwards as we have literally never been in this situation. Comparisons with the recession in the 1990s also look to be very wide of the mark with the previous largest annual fall in the fourth quarter of 1990 with a 10.7% retreat in UK house prices. When you compare this with the 10.3% reduction year on year for the third quarter of 2008 and the 14.7% reduction year on year for the fourth quarter of 2008 we really are in uncharted waters.
Historically the largest house price increases came in the years 1971, 1972, and 1973 where the annual increase peaked at a massive 42.4%. We also saw a significant rise in 1988 and 1989 and more recently 2002 and 2003 although there was a run of annual double-digit growth for 14 consecutive quarters from the third quarter of 2001 onwards. There are plenty of examples of significant rises in UK property sector since 1952 but there are very few significant falls for a sustained period and nothing to compare with the current situation.
The future of the UK property market
Prior to 2007, when UK house prices started to fall, there had been some significant down periods from which historical data could normally have been gleaned and translated into the current market. However, there has been nothing remotely to compare with the current situation in the UK property market where credit lines have disappeared and buyers are virtually non-existent. As the economy continues to fall further and further there are significant concerns about unemployment and many people across the country are trying to limit their liabilities and dispose of their properties at any price.
While we do not have the figures available to hand, the only similar situation to the one we are presented with today is the 1930s recession which literally ripped the heart out of the worldwide economy. The recovery process from the 1930s depression took decades to kick in before investors started to see any meaningful returns and an increase in economic activity.
While the situation in UK property market at the moment is dire to say the least, it is worth remembering that the average property was worth £1,891 in the fourth quarter 1952 and in the final quarter of 2008 the corresponding figure is £156,828 for a rise of nearly 8200% over the period.
When commentators suggest that the current market is like nothing seen in modern times this really is the truth. Nobody knows when the market will turn, when credit lines will reappear and when economies around the world will start to stabilise, never mind improve.
We will shortly be introducing a similar article regarding the UK property market which will compare the performance of the average UK house price, new house prices, modern house prices and older house prices.