The Unique Property
2021 -- Part Eight: House Prices in 2021 Round-Up
We have been looking at various indices, and now we ought to
be in a position to decide where property prices are headed
during the coming year.
First on the list was the Affordability Index. We
found that it was slightly overbought, but not seriously so.
It has certainly managed to rise in the past much more than
its current figure. There are no warning signs here. There is
no reason to fear a crash. There are those who point to the
coming hike in stamp duty, which is a purchase tax under a
fancy name. That will push the Affordability Index up
another notch, but IMHO that will not be enough to cause a
slump in prices, maybe just a hiccup.
Conclusion: House prices are currently relatively stable and
there is room for a small increase in prices.
Our next index is the Rent/Mortgage Index. How much
does it cost to rent versus the cost of a mortgage? If it
costs more than 20% to buy then people are going to rent. If
it costs more than 20% to rent they are going to buy.
My own situation has been showing that I would get more income
from investing the money in securities than I currently get
from the rent I receive. From a purely financial point of view
I should get rid of the rest of my properties. What that also
means is that if someone is seeking a place to live, renting
ought to be the cheaper option. However, it all depends on
where you live.
Let me do the maths on my own home. It is a four bed farmhouse
set in a two and a half acre garden, with a stream as the
bottom of the garden, and we are approximately three miles
from the sea in the Algarve. The nearest town is less than a
ten minute drive away and I am a mile from the nearest
motorway junction. If I rented the property on a long term let
I would not get more than €1,500 a month. If I sold I would
net somewhere around €750,000.
I could easily invest the money to bring me in 10% a year,
which would give me an income of €6,000 a month. Why am I
paying for insurance, repairs and renewals, council tax, etc
for the privilege of staying here? I would do better to sell
the place and increase my income by converting the real estate
to capital, and using that to invest in something bringing in
a decent return while renting.
Let's leave aside other issues, such as what I actually want
to do with my life, and home in on the money. On our
rent-to-mortgage scale I am living in a greatly over-priced
But if i sell I lose the opportunity to benefit by any future
My response to that is "What appreciation?" If the house is
already over-priced it may get even more over-priced, but to
get the proper benefit from future appreciation you need to
buy low, not buy high.
I also own a property in West London. The maths come out
roughly the same there. However, I am talking about real
estate as an investment. Most people regard it as a home, and
a possession, despite the fact that most people don't really
own their home, the mortgage company does. But how many people
realise precisely what house ownership really costs?
The fact of the matter is, in many areas houses are just too
expensive on a relative scale.
Conclusion: house prices are far too expensive.
The House Price Index is up about 5% over the past
year. That's a historical figure. We need to look into the
future. What will it do this year?
Wages are up about 1% after allowing for inflation. That's not
much. Basically it means there is room for a modest rise in
Let's take a break and see how we are doing? One index
suggests house prices are already too high, the other two
suggest there is room for a modest rise. Let's move on.
The Auction Index is an interesting one. The first
item I noticed when I checked this was the unusual amount of
properties withdrawn from the lists. Many folks are waiting
for a more favourable time to sell. They see better times
ahead. Let's hope they are right. But no matter where we are
in the country (except, that is, for Sussex) the values are
low. This would indicate that it is probably a good time to
The odds look to be stacked in favour of house price rises
over the coming months. However, we have one more index to
rate. What is the state of the mortgage market?
At the moment it is clearly not good. If you have a good job
with a comfortable income you will still get a mortgage, but
how many people are in that position? Rather too many are now
on public assistance, small businesses are in a precarious
state, and the future is uncertain.
If you go back to my earlier blogs you will see that I showed
that the real increase in house prices was due to a surge in
lending. I dont see that taking place any time soon. Maybe
things will go back to normal during the latter half of this
year. Maybe. But until we can see some sunlight in the
economic landscape, mortgage lending will be in no state to
surge. That will be the main problem with house prices over
the next few months.
Can I summarise? I think so. House prices will remain stagnant
over the course of the first half of 2021. Always assuming we
can go back to normal at least some time during the summer, we
are likely to find a resurgence in the market with some useful
rises in prices achieved. If you want to sell, hang on in
there at least until the end of the summer. If you want to
buy, wait until there are signs of a return to normal and then
buy before the surge.
One final thing. I do answer questions. If you have a question
about house prices, general markets, or anything related to
real estate then please dont be shy. I'm here to help and I
have no axe to grind.
I do of course get feedback from these blogs, and I would like
to encourage more feedback. I long ago learned that although
there is an abundant supply of fools on the planet, there are
also, thankfully, some very intelligent and interesting
people, and such folks help the rest of us improve our
One of my readers, Bernard, has been adding his comments to
several of mine, and I thought it would be helpful to spread
the discussion more widely. He says: "The problem with
affordability index, is that it is so sensitive to interest
Indeed. As it deals with the amount of money you have to pay
out every month to service the mortgage loan the size of that
monthly amount will depend to a great extent upon the current
interest rate. I will devote a future blog to investigating
this index in more detail sometime in the future, but next
week I will start a short series of blogs about the state of
things in different parts of the world. Do you think the grass
is greener somewhere else? I'll try and find out. See you