House Prices Close To The Bottom?
Well done to the FT’s excellent Alphaville blog for spotting an interesting chart in the Nationwide’s quarterly report – one that suggests house prices are just a hair’s breadth away from returning to their long-term trend.
The diagonal line is the long-term trend; the drunken squiggly one plots how house prices have deviated wildly from the straight and narrow.
Does this mean we’re close to the bottom? Well, as the graph reveals (1990-1996), prices tend to undershoot after they’ve soared. So we probably have a way to go yet.
Nationwide, in fairness, accept this: “Prices have further to fall before significant numbers of buyers will be willing to return to the market. But, as the market adjusts, property will start to look cheaper and this will encourage more activity.”
Just so. This is a graph worth keeping an eye on.
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I would agree that prices are likely to undershoot the long term average. The bad news is so relentless at the moment that people are still reluctant to buy – they are confident that if they wait another year prices will be even lower. It will be difficult to call the bottom of this market.
Really interesting article – wonder if the bounce-back will be equally as dramatic? I can’t imagine so but i’m an eternal optimist! My hope is that when affordablility / wages start to balance better, the drops will slow and quickly start to climb. Again, wishful thinking but it’s instilled into us that as a long term asset, property is as secure as they come (which probably says a lot about our current economic predicament!!).