Are House Prices likely to fall ?

This essay was written back in 2003. It interesting many of the arguments are similar. For more upto date arguments

See : Are House Prices likely to Fall in 2007?

YES House Prices may Fall

• The ration of house prices to Incomes has risen to an all time high. This means that the average worker is unable to afford a house in many areas, this will lead to a fall in prices
• Demographic factors suggest the population is likely to fall soon. Therefore there will be less people willing to buy houses.
• Low Interest rates have helped keep the housing market strong however they may rise in the future as the economy picks up and inflation rises above its inflation target.
• Rising house prices have encouraged speculation. This means people buy houses as a way to make capital gains. However as prices start to fall these people will start to sell causing a bandwagon effect of an ever increasing rate of falling house prices.
• Some areas of the country are more vulnerable to falling prices these are the areas which saw the biggest increases in the 90s
• With changing social attitudes. Couples may be more likely to live their parents for longer

NO- House Prices are Unlikely to Fall

• The ratio of house prices to incomes has increased but this is sustainable because inherited wealth is increasingly being used to buy houses.
• Housing has a high income Elasticity of Demand (YED), therefore people are willing to spend a higher % of their income on housing
• Despite a stagnant population there is an increasing tendency for smaller households e.g. single parents single old people and children leaving home earlier.
• Supply of housing has not been increasing. The number of new house built was the lowest since the war, also many council houses built in the 1960s are being knocked down, because they were associated with various social problems
• Many houses in London have been bought by foreigners