John Fowler, Big4.com
20 August 2010
(blog) Stagnation plus inflation is “Stagflation”
Breakfast plus lunch is “Brunch”
You have very likely heard of these common blended words.
Now PricewaterhouseCoopers (PwC) UK introduces “Slowth” into housing lexicon, which is not what the Urban Dictionary defines as “Slowness. Generally sloth-like behavior, especially of computers or co-workers” but presumably a blended word of “Slow” plus “Growth”.
In this case, slowth has hit the UK housing market.
Essentially, UK house prices have fallen by around 17% in real inflation-adjusted terms from their peak in 2007. And PwC feels they may not regain their previous peak in real terms until 2020.
Which is really sad news, and reiterates that the housing market has been hit hard by slowth.
This 2% annual real growth in house prices on average between 2010 and 2020 is far below historical average real UK house prices growth of around 4% annually between 1984 and 2007 and around 3% per annum between 1984 and 2010.
For comparison, PwC calculates the expected return for a number of other financial asset classes between 2010 and 2020:
House prices at 2% per year
House prices (purchase and rent-out) at 3% per year
Stocks at 5% per year
Risk-free bonds at 1% per year
From above, it appears housing falls between bonds and stocks in terms of annual return, and so concomitantly between them also in terms of risk (variability of the return). Housing appears similar to a mix of stocks and bonds.
John Hawksworth, PwC’s Chief Economist aptly comments, “There remains significant uncertainty in the UK housing market and it seems probable that it is set for a protracted period of relatively slow growth by historic standards. Housing is certainly a significantly riskier asset than index-linked gilts, although not as risky as equities. Our analysis suggests that, as an investment, housing is similar in terms of both risk and expected return over the next decade to a 50:50 mix of equities and index-linked gilts.”
2% means that housing just inches along each year, far below stocks and a smidgeon above bonds, though with some risk.
Ugh!…..slowth is perhaps a good way to describe housing. (blog)