House Prices Double Every Seven Years


Updated on 16 December 2008 | 0 Comments

...or do they? We reveal the truth behind this common property myth.

At least three times in the past month, I've heard or read the following `fact':

"House prices double every seven years."

Most recently, I came across this claim in an interview with actress-turned-property-millionaire Fiona Fullerton in last weekend's Financial Times. Alas, while Ms Fullerton may be a successful buy-to-let baroness and author of Fiona Fullerton's Guide to Buying to Let, she doesn't have her facts right.

For property prices to double every seven years, they would have to increase by an average of 10.4% a year compounded. As something of a `Statto', I know that this is well above the UK's long-run average. Hence, in order to refute this bogus claim once and for all, I grabbed the house-price data provided by Halifax, the UK's largest mortgage lender.

The Halifax House Price Index (HPI) data go back to 1983 and take in the Eighties boom, the Nineties bust and the return to soaring house prices under this Labour government. Let's analyse these UK-wide data, looking at each seven-year period from 1983 to the present day:

1) Halifax House Price Index, 1983-2007

Start year

End year

% change

1983

1990

118

1984

1991

96

1985

1992

65

1986

1993

49

1987

1994

28

1988

1995

-6

1989

1996

-4

1990

1997

1

1991

1998

9

1992

1999

32

1993

2000

37

1994

2001

54

1995

2002

97

1996

2003

113

1997

2004

132

1998

2005

132

1999

2006

129

2000

2007

(to Nov.)

126

As you can see, the above data encompass eighteen distinct seven-year periods. During this period, the average house price in the UK at least doubled on six occasions (the figures shown in bold). In addition, house prices came close to doubling in 1984-1991 and 1995-2002.

The important thing to note is that five of the above six `doubles' have occurred during the latest housing boom. Hence, it's absolutely clear that Ms Fullerton and her fellow property gurus are suffering from `recent events syndrome'. In other words, their statements only hold water using data taken from a decade of very strong house-price growth.

Now look at the data for 1988-1995 and 1989-1986, which take in the last property peak and the subsequent bust. House prices actually fellover seven years, by 6% and 4% respectively. That's a long way from doubling, isn't it?

So, only by conveniently forgetting the last property meltdown does the above claim hold true. In reality, these figures show that property prices grew by an average of 7.9% a year between 1983 and 2007.

Now let's check another reliable source of house-price data, from Nationwide BS, which goes back 55 years:

2) Nationwide BS House Price Index, 1952-2007

Start year

End year

% change

Start year

End year

% change

1952

1959

15

1977

1984

147

1953

1960

24

1978

1985

111

1954

1961

37

1979

1986

80

1955

1962

38

1980

1987

89

1956

1963

47

1981

1988

141

1957

1964

57

1982

1989

140

1958

1965

65

1983

1990

92

1959

1966

65

1984

1991

65

1960

1967

65

1985

1992

42

1961

1968

61

1986

1993

29

1962

1969

61

1987

1994

17

1963

1970

56

1988

1995

-11

1964

1971

74

1989

1996

-10

1965

1972

131

1990

1997

13

1966

1973

172

1991

1998

24

1967

1974

166

1992

1999

49

1968

1975

176

1993

2000

60

1969

1976

183

1994

2001

78

1970

1977

187

1995

2002

128

1971

1978

204

1996

2003

143

1972

1979

179

1997

2004

147

1973

1980

141

1998

2005

137

1974

1981

133

1999

2006

131

1975

1982

127

2000

2007

123

1976

1983

134

   

The Nationwide BS sample extends our timeframe to include modest house-price growth in the Fifties and the boom of the Seventies (a time of huge price inflation all round). During these 49 seven-year periods, house prices doubled on 22 occasions, including six recent `doubles'. Then again, house prices were fairly tame over long periods, and fell in 1988-1995 (down 11%) and 1989-1996 (-10%).

What's more, the Nationwide BS figures show the price of the average UK property has risen by a compound annual rate of 8.7% since 1952. Again, this is below the 10.4% a year required for prices to double every seven years.

In Summary

Thus, a more truthful statement would be:

"On average, UK house prices double every nine years. However, this is a trend and not a one-way bet, and prices can fall over extended periods."

Finally, I suspect that recent weakness in the housing market is set to continue, and that non-trivial house-price falls will be a feature of 2008. So, before buying a property, take a long, hard look at long-term price trends in the local area. Otherwise, if you take only the good years into account and ignore the bad years, then your retirement master-plan could come unstuck!

More: Get a handsome home loan with our award-winning mortgage service | Buy Now, Pay Later Mortgages| The True Cost Of Buying A Home

Comments


View Comments

Share the love