House prices are the go-to metric for measuring the housing market. The logic is that if the average cost of a UK home at the point of sale is rising, so is demand. Over the year to December 2023, government data shows house prices fell 1.4 per cent, the impact of higher interest rates having broken a decade-long streak of rising prices.
There is another way of looking at it. Rather than calculating an average house price based on data from some point in the sales process – at completion for the government numbers, at the mortgage approval stage for lenders Halifax and Nationwide, or from asking prices in the case of Rightmove and Zoopla indices – Savills has been measuring the market differently for over 20 years. According to its data, the total value of all UK homes as of the end of 2023, whether on the market or not, and whether owner-occupied, rented, or vacant, was £8.68tn, down 0.3 per cent from 2022 in the first fall since 2012.
This presents a slightly different view of the market. For those who consider a home an investment, whether because they are renting it or planning to sell it, home value makes more sense as a tracker of performance. After all, when real estate investment trusts (Reits) want to judge their portfolio value, they use holding value rather than the price at market sale. Likewise, homeowners are better off tracking the value of their investment instead of scrutinising the entire market for monthly changes in average price at the point of sale.
As expected, home value has fallen as transactions have dried up, but it is not by much. The 0.3 per cent drop looks more like stagnation than anything else. This is very different to 2008 and 2009, when over £800bn in home value was wiped out over the two years, a 14.3 per cent drop. Home values didn’t recover to their 2006 peak until 2013.
With some market data tentatively suggesting house prices are rising again as buyers take higher interest rates on the chin, Savills’ head of residential research, Lucian Cook, does not believe we will enter a 2008 or 2009-level downturn, for several reasons. The first is that the number of people on fixed-term mortgages has spread the pain of higher rates out across a longer period.
Cook says that’s partly because banks have “learned the lessons” from 2008-09 not to lend to those who can’t afford it. So far, this has meant fewer repossessions, which means there isn’t a sudden glut of stock. Indeed, as has been the case for years, housing supply is tight. Finally, there’s an economy which, though stagnant, hasn’t been accompanied by mass unemployment. This further bolsters people’s ability to pay their mortgages.
The data reveals other things. For example, in 2008 and 2009, the market downturn was seen across the country, whereas 2023’s drop was London-led. But the overall returns available remain the most telling statistics. If you bought a home in 2013, the data implies its value has jumped by about two-thirds. If you bought in 2001, you might be looking at a 263 per cent return on investment (ROI). And although home values have gone up and down over the years, the change over any given period has generally been less volatile than for equities. That has helped solidify the nation’s penchant for property investment.
