Quarterly Bulletin
House Prices Articles
| Summer 2006 | House prices and consumer spending  (410k)(By Andrew Benito, Jamie Thompson, Matt Waldron and Rob Wood of the Bank's Monetary Analysis area). This article explores the complex relationship between house prices and consumer spending. It explains that the strength of the relationship can vary considerably over time. And it highlights the key roles that both common factors and causal links have played in the weakening association between house prices and consumer spending in recent years. |
| Autumn 2004 | Housing
equity and consumption: insights from the Survey of English
Housing
(101k) (by Andrew Benito of the Bank's Structural Economic Analysis Division and John Power of the Bank's Inflation Report and Bulletin Division). This article examines data from the 2003 Survey of English Housing (SEH) in order to shed light on the link between gross equity withdrawal and spending. Our analysis suggests that the bulk of gross withdrawals is not consumed in the near term. Those who sell a property without purchasing another one and those who trade down are more likely to pay off debt or save withdrawn equity than spend the proceeds. Remortgagors and those who obtain further secured advances are likely to spend the equity, but we estimate that their equity constitutes only about a quarter of total gross withdrawals. Of those who spend equity, financing home improvements rather than purchasing consumer goods appears to be the most important use of funds. That is consistent with the relatively weak relationship between consumption and mortgage equity withdrawal recently observed in aggregate data. |
| Spring 2004 | Asset
pricing and the housing market
(100k) (by Olaf Weeken of the Bank's Monetary Instruments and Markets Division). House prices have risen rapidly in recent years. While there is little doubt that the rates of increase observed are unsustainable, there is uncertainty as to the sustainability of the level of house prices. This article applies asset-pricing theory to the housing market to gain additional insights into some of the factors accounting for this rise in house prices. It presents estimates of the ratio of house prices to net rentals (a concept close to an equity market's price to earnings ratio). This ratio is currently well above its long-term average, a situation that in the past has often been followed by periods in which real house prices have fallen. However, a simple 'dividend' discount model of the housing market suggests that lower real interest rates can account for part of the increase in the ratio of house prices to net rentals since 1996. Nevertheless, to account fully for this increase, the housing risk premium would need to have fallen too. Comparing the implied housing risk premium now with that in the late 1980s may suggest that house prices are closer to sustainable levels now than was the case in the late 1980s. However, because of data and model limitations no firm conclusions can be drawn. |
| Autumn 2003 | Trends
in households' aggregate secured debt
(100k) (by Rob Hamilton of the Bank's Structural Economic Analysis Division). The aggregate level of households' secured debt relative to their income has increased by about a quarter over the past five years, and has almost tripled since 1980. Using a simple model, this article concludes that much of this increase can be accounted for by the spread of homeownership and the fall in inflation (which has reduced the rate at which households' real debt burden is eroded over time). However, the model is unable to account for the full extent of the recent increase in secured borrowing growth. The model also suggests that, because only a relatively small fraction of the housing stock changes hands each year, the aggregate level of debt responds relatively slowly to changes in house prices. So the recent increases in house prices could lead to continuing increases in the debt to income ratio over the next five to ten years. The information content of regional house prices: can they be used to improve national house price forecasts?
(104k)(by Rob Wood of the Bank's Structural Economic Analysis Division). It is often suggested that house price movements in the South East lead, or even cause, movements in the rest of the United Kingdom. If this were the case then house price inflation in the South East would be useful when forecasting national house price inflation. There are plausible channels through which such a 'ripple effect' could operate. But tests for patterns of regional price changes consistent with the effect give mixed results. There is evidence that regional price changes were consistent with the South East playing a leading role in the late 1980s/early 1990s, but not during other periods. So it is important to understand the nature of the shock to the housing market before concluding that a given house price change in London and the South East has implications for house prices in other regions. |
| Spring 2003 | The
measurement of house prices
(81k) (by Gregory Thwaites and Rob Wood of the Bank's Structural Economic Analysis Division). House prices are an important consideration in assessing macroeconomic developments in the United Kingdom. But the special characteristics of housing-heterogeneity, infrequent sale and negotiated prices-give rise to important issues that complicate their measurement. There are several valid concepts of house prices-such as the average transaction price, the price of a typical house and the housing stock deflator-each of which is useful for a different purpose. Users must therefore be careful to match the measure they use with the concept of house prices they are interested in. Furthermore, all the available measures are volatile, so high-frequency changes in house price inflation should not be expected to persist. |
