London housing market through the lens of time.

As announced in my previous article, I will look at the London housing market from a broader perspective, leaving the short-term fluctuations to the short-sighted. As Warren Buffett once said: "Ignore the Noise" and "Focus on the Long Term". 

So, what can we see in our Bollinger Bands chart created for the purpose of this article?

Long-Term Uptrend: The average price line is generally trending upwards over the extended period shown in the chart. This is consistent with the historical trend in many major cities, where real estate prices tend to rise over time due to factors such as inflation, population growth, and economic development.

Cyclical Volatility: Despite the long-term uptrend, there are periods of volatility where prices fluctuate significantly. This is expected in real estate markets, which can be affected by economic cycles, interest rate changes, regulatory policies, and other macroeconomic factors.

Housing Shortage: As in many major cities, a chronic housing shortage in London contributes to upward pressure on housing prices. When the demand for housing exceeds supply, prices are likely to increase. This fundamental factor supports the long-term uptrend observed in the chart.

Growing Population: London's population has been growing steadily, and an increasing population usually translates into increased demand for housing. This demographic trend can drive prices up, especially if the rate of new housing construction doesn't keep pace with population growth.

Price Resilience: The recent data shows some stabilisation and a trend towards consolidation within the Bollinger Bands. This suggests that despite short-term fluctuations, property prices have an underlying resilience despite short-term volatility, likely supported by the supply-demand imbalance.

External Factors: External factors such as economic policies, Brexit implications, global economic shifts, and changes in the investment landscape can also have significant impacts on property market trends.

In summary, while the London property market shows short-term fluctuations and cycles, the longer-term trend has been upward, a tendency likely to be supported by persistent housing shortages and population growth.

For a significant collapse of the current upward trend, several major factors, often combined, could contribute to such an event. I have added (likely, possible, and unlikely) at the end of each scenario:

Economic Recession: A severe and prolonged economic downturn could reduce people's ability to buy or invest in property. Rising unemployment and decreased consumer confidence can lead to fewer transactions and falling prices. (Possible)

Interest Rate Hikes: Substantial increases in interest rates would raise mortgage costs, potentially pricing out many buyers and leading to a slowdown in the housing market. Current homeowners with variable-rate mortgages might also struggle with higher payments, leading to increased foreclosures or forced sales. (Unlikely)

Regulatory Changes: Stringent regulatory changes, such as increased property taxes, stricter lending criteria, or changes in land use policies, could dampen investor appetite and decrease market liquidity. (Unlikely)

Housing Supply Surge: A sudden and significant increase in housing supply, perhaps through government intervention or changes in planning laws, could shift the balance towards an oversupply, leading to a decrease in prices. (Unlikely)

Population Decline: A decrease in population, possibly due to changes in immigration policy, economic conditions, or other demographic shifts, would reduce the demand for housing. (Unlikely)

Political Instability: Significant political upheaval or changes in government policy that negatively affect property ownership rights, foreign investment, or economic conditions could undermine confidence in the market. (Unlikely)

Financial Crisis: A financial crisis leading to a credit crunch, where banks and lenders significantly reduce lending, could cause a market collapse as buyers struggle to secure mortgages. (Possible)

Global Economic Events: International events such as trade wars, sanctions, or other geopolitical crises could indirectly impact the property market by affecting overall economic stability. (Unlikely)

Property Market Bubble Burst: If current property prices are sustained by speculative investment rather than underlying demand, a market correction could occur if investors lose confidence and begin selling off properties, leading to a rapid price decline. (Unlikely)

External Shocks: Events such as natural disasters, pandemics, or significant changes in global oil prices can have unforeseen consequences on the economy and the property market. (Possible)

So, out of 10 possible scenarios, we have x 7 times (Unlikely) and x 3 times (Possible). (Unlikely) wins! 

The conclusion is that a perfect storm would have to develop for the prices to change suddenly and significantly. Still, I hardly see an increased housing supply generated over the next 20-30 years, even with the most clever government ideas to 'make the councils built more', overhaul the planning system, or incentivise the private sector.