Middleton Advisors’ Market Insights series investigates key trends and structural changes in UK housing markets. This article was provided by Middleton Advisors, which is our partner on Miolo Adviser, our private office client engagement platform. Miolo advances the model for the configuration of teams and management of advisers on one platform across wealth management, using AI to personalise and manage teams, selected for suitability in addition to expertise required by family offices.
In this volume Middleton Advisors consider the dilemma facing some current buyers: Is now a good time to buy? Should I wait for prices to fall more? How much might prices fall? An analysis of the last 70 years of UK housing market behaviour suggests that, for most people, such agony is unnecessary.
Executive Summary
- Homeowners occupy their homes for much longer than renters and outright owners for longer than mortgagees. At current rates of sale and current stock levels, private-sector buyers of UK housing will likely hold their asset for longer than 20 years.
- People who buy flats and terraced properties will likely own them for less time than those buying Detached and Semi-detached houses. This has important implications for those trading ‘up the housing ladder’, usually in younger and more-indebted groups, because the variability of house price growth is much greater when property is held for shorter periods.
- Low average annual returns and higher variance in the range of returns means ‘flipping’ properties in the UK on the basis of market movements only is a bad idea. Gains on three month or 12 month holds are unlikely to be sufficient to cover costs and there is more than a 1 in 8 chance of loss on a 1-year hold and 22% chance of loss on a 3 month hold.
- According to the Nationwide building society, owners of ‘the average UK home’ have seen 117% growth in its capital value over the last 20 years, despite recent price falls and a major downturn in 2008 and 2009. This equates to 3.9% per annum (compounded).
- Over all the possible 20 year periods in every quarter since 1952, average UK housing has grown in value by between 3.9% and 14.4% pac in nominal terms and averages (median) 8.7%.
- This is a higher average rate of growth than the FT All-share index which averages 6.8% by the same measure and has much more volatile returns, ranging between 0.1% and 17.2% over the same 20 year holding periods.
- The optimum holding period for private housing is 9 years if losses are to be avoided as there have been no falls recorded in all of the 246 quarters since December 1952 following a 9-year hold.
- Unlike equities and other markets, average annual housing returns increase with the length of holding period, while volatility reduces.
- For those looking to hold property for 9 years or more, it is more important to buy the right property than to obsess about timing. Bear markets can offer better opportunities than bull markets for the brave to get hold of a dream home.
- Life doesn’t stop for bear markets and there are good reasons for some owners of prime properties to sell now or in the near future as they too will then be able to take advantage of motivated sellers and lower levels of competition for the best properties.
- For many householders, the obvious option will be to do nothing as the main value of a home is in its enjoyment, capital gains are made on paper only and, as we all need one, its main value is in its enjoyment.
