Are UK house prices finally falling? It is very good news if so

One of the reasons that inflation measurement matters was highlighted yesterday mostly unwittingly I think, If we look at the subject of real wages in the UK we were told this.

Including bonuses, average weekly earnings for employees in Great Britain were estimated to have increased by 3.4%, before adjusting for inflation, and by 1.5%, after adjusting for inflation, compared with a year earlier.

Whereas Andrew Baldwin kindly crunched the numbers using other inflation measures for us.

Using any other deflator one gets lower real wage growth: 1.3% with the CPI, 1.2% with the RPIJ, 0.6% with the RPI

So we have growth but there is a lot of debate about how much? As it happens CPI and RPIJ have moved more in line with the official CPIH measure but we have seen spells where it has been much wider. This issue does change how you see the credit crunch which I can illustrate with a tweet from former Bank of England policymaker Danny Blanchflower.

and still real wage growth 5% below feb 2008 levels….

That is from the official data series which has been switched to CPIH which makes real wage growth look better than it really is. Intriguingly as I pointed out the way the influence of Imputed Rents the former Bank of England policymaker replied with this.

Ok but doesn’t the harmonized E.U. measure do what you want?

To which I replied.

Nope as the inflation measure you used to target ignores owner occupied housing entirely. They are usually just around the corner from putting it in…..

Perhaps he had forgotten. But it does reveal how this importance of this matter gets overlooked. Also Danny was keen to emphasise the role of hedonics which reminded me of this report from the annual review of US consumer inflation.

From February 2018 to February 2019, the price of lettuce increased 14.5 percent while television prices decreased 16.8 percent. This compared to an increase of 1.5 percent for all consumer items over that period.

Anybody else reminded of this famous phrase.?

I cannot eat an I-Pad


Inflation Trends

If we look back a year the UK trade weighted index for the Pound £ is little changed however that hides a fall followed by a rally. Thus from the low of mid-December at 76 it has risen to 79.5 putting a brake on the economy equivalent to more than a 0.75% Bank Rate rise. Makes you think doesn’t it about all the hand wringing from the Bank of England over any 0.25% rise. However if we switch to the US Dollar whilst we have been rallying over a similar time frame we are nearly 9 cents lower than the US $1.41 of this time last year.

We find also that the oil price is not far from where it was a year ago with the current US $ 66/67 for Brent Crude being a couple of dollars lower than a year ago. However we did see a fall followed by a rise from just over fifty dollars on Christmas Eve so there will be some upwards pressure as this is reflected first in producer and next in consumer prices.

Today’s Data

Let me change my usual pattern and start with something I have been hoping for and doing so for a while.

Average house prices in the UK increased by 1.7% in the year to January 2019, down from 2.2% in December 2018 . This is the lowest annual rate since June 2013 when it was 1.5%. Over the past two and a half years, there has been a slowdown in UK house price growth, driven mainly by a slowdown in the south and east of England.

Maybe it’s because I’m Londoner that I especially welcome this bit.

The lowest annual growth was in London, where prices fell by 1.6% over the year to January 2019, down from a decrease of 0.7% in December 2018. This was followed by the East of England where prices fell 0.2% over the year.

I have some friends trying to buy at the moment and wish then well. It is symbolic of the times that a couple who both have professional jobs can only afford a shared appreciation property ( for readers from abroad they only “own” say 2/3rds). Switching back to the national numbers we see that with wage growth in January at 3.7% then over the past year there has been real wage growth of 2% in this area. This is a welcome move after many years of losses.

Also the more up to date numbers from LSL Acadata hint at more good news to come.

Prices edged up for the third consecutive month in February, rising 0.5% to take the average value of a home in England and Wales to £302,435. A spike in prices early last year, however, means prices are down 0.5% compared to this time last year.


Producer Prices

These numbers are beginning to pick-up the higher oil price.

The growth rate of prices for materials and fuels used in the manufacturing process increased to 3.7% on the year to February 2019, up from 2.6% in January 2019…..Crude oil provided the largest upward contribution to the change in the annual rate of input inflation.

Over the next month or too this will also give the output number a push albeit a smaller one.

The headline rate of output inflation for goods leaving the factory gate was 2.2% on the year to February 2019, up from 2.1% in January 2019.


Consumer Inflation

This was a mixed month for our measures as shown below.

The all items CPI annual rate is 1.9%, up from 1.8% in January…….The all items RPI annual rate is 2.5%, unchanged from last month……The all items CPIH annual rate is 1.8%, unchanged from last month.

The drivers were an upwards pull from apparel and transport offset by rises in recreation and culture mostly computer games and food and drink. Intriguingly one of the falls came from an area which has proved very difficult to measure.

The effect came from a
range of products but most noticeably from footwear, particularly women’s footwear.

Have any readers noticed this?

As to why CPIH continues to be the lowest measure it is because of the impact of Imputed Rents via the use of Rental Equivalence.

The OOH component annual rate is 1.1%, unchanged from last month.

This is very different to the United States where the official inflation measure shows that it is such matters ( they call it OER) which has pulled the inflation numbers higher.


It is genuinely pleasing to be able to report that real wages are outpacing house prices by a decent amount and even more so that this may increase, if we move from slower house price inflation to actual falls. I have been hoping for a long time that first-time buyers might get some actual help from this route rather than being helped to borrow ever more.

Of course this will not be welcome in Threadneedle Street where at the emergency COBRA meeting Bank of England Governor Mark Carney will be ruing the negative wealth effects and chewing his fingernails. I would not want to be the underling bringing him these numbers. But returning to happier news we may for once be seeing the beginning of an actual positive rebalancing of the UK economy as real wages make house prices ( a little) more affordable.






19 thoughts on “Are UK house prices finally falling? It is very good news if so

  1. “It is genuinely pleasing to be able to report that real wages are not outpacing house prices by a decent amount and even more so that this may increase..”

    Really? Bit harsh. 😉

  2. “They”will only tolerate hose price falls up to a certain point and then there will be massive interventions from both the government and the Bank of England(see what happened to the US stockmarket at Christmas following an almost 20% decline -the threshold for calling it a bear market-the Fed promptly stepped in and bought the market and assured investors they had their back.)

    They have for the last ten years, firmly tied themselves to the mast of inflating asset prices – stocks and houses, stepping in at the slightest wobble, why would they change course now and allow them to fall?

    • They are already giving people interest free loans of up to £240,000 for 1 bed flats in SE England. They continue with interest only BTL mortgages. They continue with MIRAS for most landlords. They continue lending many multiples of wages by extending mortgages to 35yrs thus circumventing MMR. They’ve already some of the strictest planning laws on earth so an Oligopoly of builders dribble out tiny slave boxes with ever smaller space thus stopping self builders. They’ve already got a building company owner as Chancellor who has stated he is in the pocket of corporations … I don’t think there is a whole lot more they can do, and should they wish to stay in government pricing out yet more people isn’t the solution.

  3. Hello Shaun,

    Well $ 66/67 for Brent Crude isn’t cheap. Cheap oil is over but doesn’t seem to have caused any major upsets that some other blogs would have you believe 🙂


    • Hi Forbin

      The issue of the price of energy as got more complex as the establishment has intervened. The rises in the price of electricity in recent years have had little or nothing to do with a higher oil price and more to do with the price of some alternatives such as wind power and nuclear. So I guess US $66/67 looks cheap relative to them. Mind you at the price we will soon be paying almost anything would!

      Electricity prices only had a small impact in February but of course it all tends to come in a rush….

  4. Hello Shaun,

    I guess there comes a moment when to support the current house price rises there is absolutely nothing that they can do , no matter what.

    Fear will be the main driver

    And I still note that the market was chilled before xmas and has not been good since here in the SE. Anecdotal evidence from the EA point to a top end failing by a bit followed by the middle market but if I look at the Rightmove price reductions I suspect there are real falls here back to 2014 prices …..

    Considering the BoE inability to get motivated over anything at all ( except the sweet trolley ) I think the panic will be setting in soon.

    then the herd will follow……..


    • Fergus Wilson is a 1 man herd who seems to be flogging what he can, but i found the hatchet job by Panorama on him utterly pointless and of the limited intellect i’d expect from the BBC.

      The issue at hand is the fact landlords like him have been bailed out for over a decade; even he has previously admitted if it wasn’t for QE/ZIRP that he’d have gone bankrupt … thus allowing 1000s of families to have lived in those houses as owner occupiers having bought at fire sale prices.

      But those at the BBC who make Panorama will no doubt be neck deep in London property wealth with a few cheeky BTL’s in the shires, to talk about at dinner parties.

      I think the only way the Brit obsession with pwopertee investment will end is with an almighty crash, ending S24 for all landlords and an end to buy to let mortgages. Here is hoping!

      • the paucity of journalism at the BBC has been known for some time , it’s not going to get better because it seems to be just an “entertainment” channel ..


        PS: do you know why Marxist drink coffee ?

        Because proper tea is theft …….

        ok , I’ll get my hat and coat now…….

  5. Should Labour get in at the next election, they would I believe introduce some form of UBI in a heartbeat, of course it will be sold as a “temporary” measure(aren’t they always?), and the financial assistance to first time buyers ramped up to keep prices moving in the “right” direction, mortgage terms of 30,35,40 years and more will become the “norm” and parental assistance as has already been started by Lloyd’s will become the “norm” also and grow further and further as a percentage of the initial mortgage advance, for those almost priced out, add in also an element of shared ownership with the lending institution that will increase over time.

    Politicians will not fear an electoral backlash since both parties will try and outdo each other in terms of their generosity to first time buyers to buy their votes, and as long as the demographic balance dictates the bribes ensure more votes than those first timers who still remain priced out of the market they will continue. So by keeping the boomers with massive gains on their property(portfolios) happy and by bribing first time buyers with the above, they can keep both parties with conflicting interests(boomers want prices to go up/first time buyers want prices to go down) happy. So as I see it, at least another generation for this game of keepy uppy,

    • Hi Kevin

      Someone will also be looking out of a Threadneedle Street window on developments in the US this evening. No more interest-rate rises ( will just one promised for 2020 as a face saver) and a taper of QT in May and a halt in September.

      So the US Federal Reserve sees its role as providing a put option for the US equity market and now doubt an ambitious economist at the Bank of England is suggesting it doing the same for UK house prices.

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