Summary of Yolande Barnes’s contribution to “Where Next for House Prices” (with some additions) at FT Weekend Festival, 2 September 2023.
Where will house prices be this time next year?
I think it’s inflation that’s going to strip out the value of housing over the next year by about 5%, and indeed, it already has (significantly) this year. Real house prices in June were down by over 14% on March 2022 levels according to the Nationwide Building Society. But rises or falls will depend on which housing market you’re talking about. When we talk about UK house prices, what do we actually mean? Usually, it’s the properties that transacted within a given time period. These properties can change substantially over time according to market conditions so we’re not always comparing like with like between bull markets and bear markets. Some housing markets even now are still rising and others have been suffering horribly since the lockdown. So, I think this whole conversation has to become a lot more nuanced. We forget that only 26% of households are actually mortgaged. A huge number of owner-occupiers own outright without a mortgage. And increasing numbers, of course, are renting. So, talking about only the mortgage market, as some house price measures do, is becoming a really esoteric sort of exercise.
We’ve had 15 years of incredibly low rates. Are we now entering a new era of high interest rates? And how does that shape the property market?
I would hesitate to call it a new era. Actually, I think what we’re entering is a very old era. And to illustrate that, what I want to say is that actually we’re all living in the late 20th century in terms of our expectations and even language about housing. And the late 20th century was a very, very peculiar period in history.
If you look at the previous couple of hundred years before the second world war, Bank of England base rates averaged 4%, with some fluctuations between 2% and 6%. We are thinking now about 6 per cent rates being high and expecting that 4% or 5%, mortgage rates to be normal. Well, that’s really kind of “back to the future,” isn’t it? It’s certainly different to the high double-digit interest rates of the 1970s and 1980s when a lot of the discourse around house prices and housing markets became embedded in the national psyche. I think what we’ve got to get used to now is a very different sort of way of thinking about housing.
