From the low in 1995 the average UK house price has risen from £50,930. to the £158,745 by the end of 2005, which is more than tripling in price ! From peak to to peak House prices have risen about the same 50%, as when the peaked in 1990. The Trend analysis suggests any decline could take house prices to the previous peak of approx 105k ! which would represent a staggering drop of 34% off current prices !

Average earnings is considered to be the most important indicator for house price over valuation, as you can see house prices on this basis are now more unaffordable than at any time during the last 50 years ! Staggering so, at 6 X earnings.Usually peaks have occured once house price inflation breaches 5 and then declines to half or 2.5, which on the current basis suggests a low once house prices are X3 average earnings. At 4% earnings growth that suggests a 3 year low around the £102k mark, i.e. similarly to the trend analysis chart. So in summary - If you think house prices in real-terms are not going to fall ? Then your in for a nasty shock during the next 3 or so years !

Nadeem Walayat

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