Episode Details

Before we get started today, if you haven’t already seen it, check out my interview with Alex Langer of Sierra Madre. There could be quite an opportunity setting up with this silver mining company.

There are just a handful of tickets left for my lecture with funny bits about gold in London on October 19. I’m not sure when I will next be doing this show so book early to avoid disappointment and all that.

And, if you haven’t yet seen Programmable Money, I think you will be amused.

Right, house prices. They are in free fall …

“Fastest fall in 14 years” said the Guardian on the back of the latest numbers from the Halifax, which reported year-on-year falls of 4.7%. The Telegraph was similarly gloomy. ”London house prices slump,” said City AM. “6 months of consecutive declines,” noted the FT. The latest Nationwide numbers showing declines of 5.3% are even worse.

But, some context. Here are house prices since 1950. Relentless. The current declines are a mere blip, though it may not fee like that.

I have long-argued that houses are, in effect, financial assets whose prices are largely determined by the availability and cost of money. When lending is loose and money is cheap, house prices rise. When lending tightens and the cost of money goes up, so do house prices fall. With rising rates, the reality of this is now plain to see.

It would seem that the housing market peaked in summer 2022. I know nominally it was November, but in reality it will have peaked 6 to 9 months before that because of the various lags in house price data reporting. (There is a chap called Charlie on Twitter, who is very good on this by the way). Housing data lags the market because moving home is such a slow process: you decide to move, you put your house on the market, you wait for a buyer, it takes time to exchange and complete, then there are several months more before the Land Registry actually reports the transaction. 

But from August 2022 to August 2023, according to Bank of England data, mortgage lending has fallen by 43%, while the number of approvals is down 36%. Of course house prices are falling.

How far do house prices fall?

The answer to that lies with the Bank of England Monetary Policy committee, gilt markets, interest rates and all the rest of it. Sterling also has issues, which is going to put upward pressure on rates. But with another million or so cheap fixed rate deals coming to end in the next year, and another million the year after that, something like two million households are going to be hit with much higher mortgage costs. Just how much will those costs be? 

The genius that is Merryn Somerset Webb, as always, has the answer:

“Mortgage on 350k at 2%: £1484 a month and total payment £445,126. Mortgage on £350k at 5.5%: £2149 a month and total £644,745. To get payment back to £1484, you can only borrow £243k (total payment 447k). And that's why house prices are falling.”