Interest rates, house prices and family homes

There’s an interesting conversation happening on twitter over a graph that shows the inverse relationship between [London] house prices (growing) and interest rates (falling) from 2004 - 2020

The simple, and obviously relevant, conclusion is that the lower rates are driving the prices up, particularly as investors switch away from investing in stock markets (that have crashed twice in that time) and into property.

However, I also came across this interesting analysis of how certain types/sizes of properties have been disproportionately affected - and that is the larger family homes.

If we are to make sensible plans, and lobby for assistance so more young people can afford to own a property, then it might help to have a better understanding of what else might be happening.

One interesting conclusion is that there was also a big population increase over that time, leading to overcrowding. If we do all work from home more from 2021, then maybe this pressure will reduce and help prices while rates are still low.

Anyway, do take a read and share your thoughts

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Interesting. My initial instinct was that correlation doesn’t equal causation - but was quite taken by some of the nuance, like the lack of family homes pushing prices up.

The first graph is interesting as the inverse relationship between interest rates and house prices only really holds after 2011. I suspect that a confluence of factors is happening here.

Interesting things to ponder over, though.

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Talking of graphs, this one caught my eye today and makes interesting reading if you are looking to buy property in the next few years.

This is from the report by the Office of Budget Responsibility report published today (25 Nov 2020) and seems to show they expect a sudden dramatic fall in the value of house price inflation - with major decreases, followed by steep rises in a couple of years.

That’s quite a rollercoaster ride!