London property prices have reached ludicrous heights. Dr Matthew Partridge looks at what could pop the bubble, and how far prices could fall.
UK house price indicators
We watch five indicators, all of which have proved useful guides in the past. These include the RICS Housing Market Survey and data on both mortgage lending and mortgage approvals. Consumer confidence is another useful data point we keep an eye on.
You can read in detail what each indicator suggests for UK house prices using the tabs above.
What's the latest?December's RICS balance fell to 11, ie, 11% more surveyors saw prices rising than falling. The December Halifax UK three-monthly house price index saw a 7.8% year-on-year rise.
What does this mean for UK house prices? The RICS survey leads the Halifax index by around six months. With a balance of 11%, will Britain's housing market keep climbing?
What's the latest?November saw UK NMLG fall to 4.4%. That compares with annual growth of 1.9% two years ago, 5.7% in December 2008 and 11.1% in February 2007. Meanwhile, the December Nationwide UK house price index is 7.2% higher year-on-year.
What does this mean for house prices? This long-term collapse in NMLG suggests UK house prices are standing at the cliff face. If they follow net lending trends, residential property values could slump by over 15%.
The Bank of England's monthly 'mortgage approval for house purchase' figures are another useful forward indicator of UK housing market activity.
What's the latest? BoE mortgage approvals for house purchase fell from 61,234 in September to 59,426 in October. That's a long way from the peak of 129,168 approvals back in November 2006. Meanwhile, the November Nationwide UK house price index is 8.5% higher year-on-year.
What does this means for UK house prices? BoE mortgage approvals for house purchase lead annual percentage changes in the Nationwide UK ‘all houses’ price index by some four months. And with Britain’s recovery still fragile, a further slide in house prices is a possibility.
This gauges the monthly mood swings of Britain's consumers. It "tracks changes in personal finance, the general economic situation, inflation, unemployment, the current purchasing climate, and consumer spending and saving", say its compilers GfK/NOP.
What's the latest? For November, the GfK fell to -4. December's Halifax UK three-monthly house price index saw a 7.8% year-on-year rise.
What does this mean for UK house prices? This indicator leads the Halifax UK three-monthly house price index by some four months. The recent dip in the GfK indicates lower consumer confidence.
The UK CPI (consumer price index) is the most widely-used indicator of our cost of living.
What's the latest? December's UK CPI was up 0.5% year-on-year, compared to 1.0% the previous month. Meanwhile, RPI was 1.6% higher – down from 2.0% in November. The December Nationwide UK house price index is 7.2% higher year-on-year.
What does this mean for UK house prices? Higher CPI normally means higher interest rates. Despite the fall in UK CPI since 2010, inflation is still too high. It may drop more, but the historic relationship of higher CPI = less UK house price inflation will return at some point.
Property: the MoneyWeek view
January 2015: Look abroad for value UK prices still look set to rise this year, but only by around 3%-4%. Even if prices fall a tad, the market remains overpriced. Investors should continue to look abroad for value.
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