Ben Mountifield is a successful private
investor and publisher of the highly acclaimed Mountain Investor
Report. He has been described as a value investor as well as a
contrarian, and has a strong Austrian 'free-market' bias.
UK Property Prices Are Now Down 25% In Real Terms Since Their
2007 Peak
In nominal terms the price of the average UK home has only
fallen 10.5% since peaking in Q3 2007 at £184,131. In real terms
however, i.e. adjusted for inflation (RPI), the price of the
average UK home has fallen 25%.
The chart below shows average UK house prices in nominal terms,
and adjusted for both the CPI and RPI inflation rates.
Average UK House Prices Q1 1992 to Q4 2011 (nominal
& inflation adjusted data)
Notes: Property price data from Nationwide
House Price Index. Inflation data from the ONS.
In an environment of high inflation the nominal value of things
is much less important than their value adjusted for inflation,
i.e. adjusted for the reduced purchasing power of our money.
Few things illustrate this better than the relationship between
UK property and gold. Since the peak in 2007 the value of an
average home in pound terms has fallen from £184,131 to £164,785, a
fall of 10.5%. However, when measured in terms of real money, i.e.
gold, the average UK home has lost 56.5% of its value.
The reality is that the governments policy of financial
repression is hear to stay, and as a result I expect the real value
of property to continue to fall.
In addition to the fact that an investment in UK property is
being eroded by inflation, there remains the risk (read certainty)
posed by higher interest rates. When the buyers of Britain's debt
grasp the true size of our debt burden they will stop turning up to
the auctions. This will send bond yields soaring (just as it did in
the PIIG countries) and will quickly bring about higher rates for
mortgage holders. This event will likely be the pin that finally
bursts Britain's property bubble.