Are we too bearish on house prices?

We thought we were bearish about UK house prices. And with real wages still falling and mortgage credit still tight, we see further falls ahead. But here's an even gloomier view of Britain's property price prospects.

Sometimes we suffer moments of doubt. Sometimes we even think we might be too bearish on house prices. Then we look at the numbers again and think we might not be quite bearish enough. This week, I've been flicking through a report out from Shore Capital on the UK housebuilding sector. Jon Bell, its author, sets out his stall with a run through of his views on prices. They fit pretty nicely with ours.

First he points out that UK house prices remain "materially overvalued based on their historical relationship with earnings." The house price to earnings ratio in the UK (based on Nationwide data) is around 4.4 times. The historical average is 3.4 times. To get back to that level implies a further fall in prices of 23%. However, if you take 2000-2007 (the nutty lending years) out of the equation the average price to earnings ratio is more like three. That implies a fall from here of just over 30%. However even these numbers make the optimistic (heroic even) assumption that real wages in the UK will remain constant. That clearly isn't the case.

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Merryn Somerset Webb

Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).

After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times

Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast -  but still writes for Moneyweek monthly. 

Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.