{"id":2632,"date":"2008-08-19T15:39:36","date_gmt":"2008-08-19T15:39:36","guid":{"rendered":"https:\/\/mmm.9dotdigital.ca\/?p=2632"},"modified":"2025-03-27T15:48:41","modified_gmt":"2025-03-27T15:48:41","slug":"uk-house-prices-how-much-worse","status":"publish","type":"post","link":"https:\/\/mmm.9dotdigital.ca\/?p=2632","title":{"rendered":"UK house prices \u2013 how much worse?"},"content":{"rendered":"<p>One way of assessing the downside for house prices is to ask how much further they would need to fall to achieve either a &ldquo;fair&rdquo; level by historical standards or a given level of undervaluation &ndash; on the assumption that markets typically undershoot on the way down.<\/p>\n<p>The discussion is usually couched in terms of the house price to earnings ratio but &ndash; as explained in an earlier post &ndash; the rental yield on housing is a superior measure of valuation.<\/p>\n<p>The chart below shows historical National Accounts data on the rental yield together with a current estimate based on prices having fallen 11% from their peak late last year (as suggested by the Halifax index).<\/p>\n<p>The current estimated yield of 3.4% compares with a long-term average of 3.6% &ndash; a reasonable estimate of &ldquo;fair value&rdquo;. Assuming no change in rents, prices would need to fall a further 6% to bring the yield up to the average. The RICS survey of letting agents released today indicates that rents are still rising so a smaller decline would be possible.<\/p>\n<p>Now suppose the market undershoots to the same extent that it overshot in 2007. The yield got down to 2.9% last year &ndash; 70 basis points below the average. A rise to 70 b.p. above the average would take it to 4.3%. This would involve a further 21% fall in prices from current levels, assuming unchanged rents.<\/p>\n<p>The bottom line? A further 10-20% fall in prices would bring them to an attractive level for a long-term owner or investor. <\/p>\n<p><span class=\"full-image-block ssNonEditable\"><span><img decoding=\"async\" src=\"\/storage\/UK-housing-rental-yield-0808.jpg?__SQUARESPACE_CACHEVERSION=1235146187384\" alt=\"\" \/><\/span><\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>One way of assessing the downside for house prices is to ask how much further they would need to fall to achieve either a &ldquo;fair&rdquo; level by historical standards or a given level of undervaluation &ndash; on the assumption that markets typically undershoot on the way down. The discussion is usually couched in terms of [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3],"tags":[],"class_list":["post-2632","post","type-post","status-publish","format-standard","hentry","category-money-moves-markets"],"_links":{"self":[{"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=\/wp\/v2\/posts\/2632","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=2632"}],"version-history":[{"count":1,"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=\/wp\/v2\/posts\/2632\/revisions"}],"predecessor-version":[{"id":4941,"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=\/wp\/v2\/posts\/2632\/revisions\/4941"}],"wp:attachment":[{"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=2632"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=2632"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=2632"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}