Where do house prices go from here?

The figures tell us that house prices are unsustainable at current levels and are likely to head dow

A big question is: where do house prices go from here? According to Halifax, house prices peaked in December 2007 and have fallen 17 per cent since then. Real house prices have fallen even further -- by around 27 per cent. Homeowners on trackers have done really well. Their payments fell sharply as interest rates fell to historically low levels after the Monetary Policy Committee (MPC) cut the Bank of England rate to 0.5 per cent. This has kept delinquencies down but it is unlikely to continue when interest rates rise. This will inevitably have a downward impact both on house prices themselves and, inevitably, on consumption also.

Based on house-price-to-earnings ratios (HPE), a measure of affordability, it does look as if house prices are unsustainable at current levels and hence still have quite a long way to fall.

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Chart 1 (click here for a bigger version) illustrates this, using data from the Halifax. The index stands at 4.45, compared with a peak of 5.81 in July 1987 and a long-run average from 1983 to 2000 -- prior to the house price boom -- of 3.64. The question is by how much. These numbers suggests that house prices have another 20 per cent or so to go, with the concern that, as has occurred in other house price corrections, there is a bigger overshooting before prices return to the long-run equilibrium. Interestingly, a comparison of gross rental yields, relative to a long-run average, also indicate that housing is at least 20 per cent overvalued.

But claims about the sustainability of HPEs come up against the counter-claim that low interest rates have made valuation metrics less useful as a guide to the sustainability or otherwise of prevailing house prices. Compelling new work by Paul Diggle from Capital Economics sheds some light on this issue. He argues that comparing house prices to equity prices, which should also have benefited from low interest rates, still suggests that house prices are about 15 per cent too high.

There are similarities, he suggests, between how equities and property "should" be priced. As a claim on a company's future earnings, the price of a share, he claims, should equal the present discounted value of the expected earnings to which it entitles the owner, with a suitable allowance for risk. An equivalent way of determining the "fair value" price for property is by using the present discounted value of the future stream of rental income, adjusted for risk and the costs of owning and maintaining property. So, Diggle argues, by lowering the rate at which future income is discounted, low interest rates should have benefited both asset classes. Even so, relative to a simple long-run average, the ratio between house prices and equity prices seems to suggest that either equities are around 15 per cent too cheap or housing is around 15 per cent too expensive. (See Chart 2 -- click here for bigger version).

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Given that the FTSE all share price/earnings ratio indicates that stock market valuations are very close to average historical levels, Diggle argues, there is little evidence for the former. The house-price-to-equities ratio seems to imply that house prices are higher than can be justified by low interest rates.

It is significant that the extent to which housing is overvalued on this new measure is similar to other measures, such as the HPE and rental values. The house-price-to-equities ratio adds to the case that a downward adjustment in prices is required. House prices look to be headed down.

David Blanchflower is economics editor of the New Statesman and professor of economics at Dartmouth College, New Hampshire

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Keep the Burkini, ban the beach

Beaches are dreadful places. Maybe it would just be easier to ban them.

To hell with political correctness, I'm just going to say it. I think women who wear burkinis to the beach are silly. I also, for that matter, think women who wear bikinis to the beach are silly. Not because of what they're wearing – women, quite obviously, should be able to wear whatever the hell they want without interference from eyebrow-furrowing douchecanoes and neighborhood bigots whose opinions are neither relevant nor requested. No, my problem is with the beach. 

Beaches are dreadful places. I question the judgement of anyone who chooses to go, of their own free will, to a strip of boiling sand that gets in all your squishy bits, just to lie down. I associate beaches with skin cancer and sunstroke and stickiness and sharks. As a neurotic, anxious goth who struggles with the entire concept of organised fun, even the idea of the beach distresses me. I won't go and you can't make me. Especially given that if I did go, whatever I chose to wear, some fragile man somewhere whose entire identity depends on controlling how the women around him behave would probably get outraged and frightened and try to ban me.

Men love to have opinions on what women should wear on their holidays. Nipples are not to be tolerated, and burkinis are now an invitation to Islamophobia, so I can only imagine how my grumpy summer goth robes would go down. The annual summer storm over women's beach attire has a xenophobic twist this year after burkinis – the swimsuit alternative for women who want to conform to a “modest” Islamic dress code – were banned on many beaches in France (although one specific one, in the town of Villeneuve-Loubet, has been overturned by a test ruling in the country’s highest court).

Not to be outdone, Nicholas Sarkozy has promised to institute nationwide legislation against the “provocative” garment if he's re-elected as president, jumping gleefully on the bandwagon brought to global attention by race riots in Corsica. Photos have emerged of Nice police officers apparently forcing a sunbathing Muslim woman to strip down and issuing her with a penalty slip. I can only imagine what that poor woman must have felt as the state swooped down on her swimsuit, but hey, Sarkozy says that public humiliation of Muslim women is a vital part of French values, and women's symbolic experience is always more important than our actual, lived experience. There are many words for this sort of bullying, but Liberty does not come into it, and nor does Equality. Fraternity, of course, is doing just fine.

Whatever women wear, it's always provocative to someone, and it's always our fault – particularly if we're also seen to be shamelessly enjoying ourselves without prior permission from the patriarchy and the state. If we wear too little, that's a provocation, and we deserve to be raped or assaulted. If we wear too much, that's a provocation, and we deserve racist abuse and police harassment. If we walk too tall, speak to loud or venture down the wrong street at night, whatever we're wearing, that's a provocation and we deserve whatever we get. The point of all this is control – the policing of women's bodies in public, sometimes figuratively, and sometimes literally. It's never about women's choices – it's about how women's choices make men feel, and men's feelings are routinely placed before women's freedom, even the simple freedom to wear things that make us feel comfortable as we queue up for overpriced ice cream. It's not about banning the Burkinis, or banning the bikini. It's about stopping women from occupying public space, curtailing our freedom of expression, and letting us know that whoever we are, we are always watched, and we can never win.

If you ask me, the simplest thing would just be to ban the beach. I consider people on the beach a personal provocation. Yes, I grew up in a seaside town, but some of the beach people come from far away, and they aren't like me, and therefore I fear them. The very sight of them, laying around all damp and happy, is an active identity threat to me as an angry goth, and that means it must be personal. As far as I'm concerned the beach is for smoking joints in the dark in winter, snogging under the pier and swigging cheap cider from the two-litre bottle you've hidden up your jumper. That's all the beach is good for. Ban it, I say. 

I do, however, accept – albeit grudgingly – that other people have different experiences. Some people actually like the seaside. And given that I am neither a screaming overgrown toddler with affectless political ambitions nor a brittle, bellowing xenophobe convinced that anything that makes me uncomfortable ought to be illegal, I have learned to tolerate beach people. I may never understand them. That's ok. The beach isn't for me. Not everything has to be for me. That's what it means to live in a community with other human beings. As performative Islamophobia and popular misogyny bake on the blasted sand-flats of public discourse, more and and more conservatives are failing to get that memo. I'd suggest they calm down with an ice lolly and a go on the Ferris wheel – but maybe it'd be easier just to ban them. 

Laurie Penny is a contributing editor to the New Statesman. She is the author of five books, most recently Unspeakable Things.