House prices double every 7 years?


Updated on 05 October 2010 | 26 Comments

We crunch the numbers to find out how many years it takes for house prices to double.

One frequently quoted ‘rule of property investing’ is: House prices double every seven years.

How true is this claim? Let’s find out...

Double trouble?

In order for property prices to double in seven years, they need to rise by an average of 10.4% a year compounded. I know from previous research that this is well ahead of the UK’s long-run average. Nevertheless, in order to scotch this seven-year nonsense, I downloaded house-price data provided by Halifax, the UK’s largest mortgage lender.

The Halifax House Price Index (HPI) data go back to 1983 and take in the Eighties surge, the Nineties bust, the boom of 1995 to 2007 and, most recently, the 2007/09 collapse. Here is each seven-year period from 1983 to the present day:

Halifax House Price Index, 1983-2009

Start

year

End

year

Start

price

End

price

Change

1983

1990

£31,621

£68,895

118%

1984

1991

£34,292

£67,250

96%

1985

1992

£37,259

£61,643

65%

1986

1993

£42,262

£62,868

49%

1987

1994

£48,825

£62,383

28%

1988

1995

£65,442

£61,544

-6%

1989

1996

£68,754

£66,094

-4%

1990

1997

£68,895

£69,657

1%

1991

1998

£67,250

£73,286

9%

1992

1999

£61,643

£81,596

32%

1993

2000

£62,868

£86,095

37%

1994

2001

£62,383

£96,337

54%

1995

2002

£61,544

£121,138

97%

1996

2003

£66,094

£140,687

113%

1997

2004

£69,657

£161,742

132%

1998

2005

£73,286

£170,043

132%

1999

2006

£81,596

£187,250

129%

2000

2007

£86,095

£197,388

129%

2001

2008

£96,337

£165,171

71%

2002

2009

£121,138

£167,033

38%

Source: Halifax HPI, All Houses, Seasonally Adjusted

The above data encompass 20 distinct seven-year periods. From 1983 to 2009, UK house prices doubled in six separate seven-year periods (those shown in bold). Also, house prices nearly doubled in 1984-1991 and 1995-2002.

John Fitzsimons looks at some simple ways to boost the value of your home.

However, five of these six ‘doubles’ occurred during the long boom of 1995 to 2007. Thus, property pundits may have been suffering from ‘recent events syndrome’ when making their seven-year claim.

What’s more, our table shows two periods when property prices fell over seven years, in 1988-1995 (down 6%) and 1989-1996 (down 4%). Again, this robustly disproves the ‘seven-year pitch’.

In short, during long, strong property booms, house prices do indeed double or better every seven years. On the other hand, from 1983 to 2009, the average value of a UK home increased by 428%, which equates to 6.6% a year. Based on this rate of growth, property prices double, on average, every 11 years and not every seven years.

Let’s do some more number-crunching, this time using house-price data produced by Nationwide BS, which goes back 57 years:

Nationwide BS House Price Index, 1952-2009

Start

year

End

year

Start

price

End

price

Change

1952

1959

£1,891

£2,170

15%

1953

1960

£1,872

£2,328

24%

1954

1961

£1,853

£2,543

37%

1955

1962

£1,937

£2,673

38%

1956

1963

£2,003

£2,943

47%

1957

1964

£2,030

£3,185

57%

1958

1965

£2,068

£3,418

65%

1959

1966

£2,170

£3,586

65%

1960

1967

£2,328

£3,837

65%

1961

1968

£2,543

£4,089

61%

1962

1969

£2,673

£4,312

61%

1963

1970

£2,943

£4,582

56%

1964

1971

£3,185

£5,533

74%

1965

1972

£3,418

£7,880

131%

1966

1973

£3,586

£9,767

172%

1967

1974

£3,837

£10,208

166%

1968

1975

£4,089

£11,288

176%

1969

1976

£4,312

£12,209

183%

1970

1977

£4,582

£13,150

187%

1971

1978

£5,533

£16,823

204%

1972

1979

£7,880

£21,966

179%

1973

1980

£9,767

£23,497

141%

1974

1981

£10,208

£23,798

133%

1975

1982

£11,288

£25,580

127%

1976

1983

£12,209

£28,623

134%

1977

1984

£13,150

£32,543

147%

1978

1985

£16,823

£35,436

111%

1979

1986

£21,966

£39,593

80%

1980

1987

£23,497

£44,355

89%

1981

1988

£23,798

£57,245

141%

1982

1989

£25,580

£61,495

140%

1983

1990

£28,623

£54,919

92%

1984

1991

£32,543

£53,635

65%

1985

1992

£35,436

£50,168

42%

1986

1993

£39,593

£51,050

29%

1987

1994

£44,355

£52,114

17%

1988

1995

£57,245

£50,930

-11%

1989

1996

£61,495

£55,169

-10%

1990

1997

£54,919

£61,830

13%

1991

1998

£53,635

£66,313

24%

1992

1999

£50,168

£74,638

49%

1993

2000

£51,050

£81,628

60%

1994

2001

£52,114

£92,533

78%

1995

2002

£50,930

£115,940

128%

1996

2003

£55,169

£133,903

143%

1997

2004

£61,830

£152,464

147%

1998

2005

£66,313

£157,387

137%

1999

2006

£74,638

£172,065

131%

2000

2007

£81,628

£183,959

125%

2001

2008

£92,533

£156,828

69%

2002

2009

£115,940

£162,116

40%

Source: Nationwide HPI, All Houses

This Nationwide BS sample extends our analysis all the way back to the Fifties and thus takes in the inflation-driven boom in house prices of the Seventies.

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These data include 51 distinct seven-year periods, of which 22 saw house prices at least double. Note that house prices fell in 1988-1995 (down 11%) and 1989-1996 (down 10%), broadly in line with the Halifax HPI.

Again, Nationwide HPI data disprove the myth that house prices double every seven years. Since 1952, the average price of a home has climbed by 8,473% over 57 years. This equates to a compound growth rate of 8.1% a year, which is well below the 10.4% required for prices to double every seven years.

Based on 57 years of Nationwide HPI, house prices double, on average, every nine years.

Time for the truth

Using these data, we can make the following statement:

“On average, UK house prices double every nine to 11 years. However, this trend often fails. Also, prices can -- and do -- fall over seven years or more.”

That said, inflation -- the general trend for the price of goods and services to rise over time -- will put a big dent into these figures. After accounting for general inflation, the ‘real’ rate of increase in house prices is more like 2% a year. At this rate of growth, real (after-inflation) house prices would take almost 35 years to double.

Finally, I suspect that recent weakness in house prices may well signal the start of another downturn. In August, I listed 12 reasons why I expect house prices to go into reverse in 2010/11. What’s more, I expect the next round of house-price surveys to reinforce my view, so watch this space...

More: House prices beat inflation | The UK’s worst mortgage lenders

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