Unemployment versus House Prices 1975-2008
The following graph shows the quarterly unemployment rate compared to real house prices. House prices have been adjusted for inflation and are given in 2009 Q1 prices.
Sources
- Unemployment rate is from National Statistics Time Series Data – Labour Market Statistics – MGSX: LFS: Unemployment rate: UK: All: Aged 16 and over: %: SA
- Real House Price is from Nationwide’s UK All Properties series, and is not seasonally adjusted.
Easy conclusion – one goes up, the other goes down.
If you display this same chart with the house price data on a logarithmic scale, the trend would be even more obvious.
I may be missing something but I don’t see evidence of a clear correlation up v down. The unemployment figures do not appear to fall significantly (compared to previous trends) from 1999-Q3 to 2004-Q4 whereas house prices rose steeply. In the period from 1982-Q1 for approx. one year, both unemployment rate and house prices are shown as rising together. Maybe this does look a bit different using logarithmic scale but, with the distortions in the values used, I’m not sure I could make much of this chart (unemployment figures are distorted by changing benefits/training schemes, changing incentives, changing social housing policies etc. Also, averaging house prices masks the real world).
I agree it would be logical if a higher unemployment rate meant that fewer people could afford to buy a home – therefore if demand went down, so would prices. However, the size of this effect must depend upon who is losing their jobs. In some eras, the unemployed may not have been in the market in the first place. Also, it seems that the lack of borrowing facilities (part of so called affordability) is having more of an effect on house prices at the moment. I am certainly not an expert in economics but just don’t feel confident enough in the chart to conclude “if one goes up, the other goes down”.
I think there is a bit of a leap of faith to see a correlation between the unemployment rate and house prices. Just because there appears to be some numerical linkage, does not imply that the two factors in some way influence each other. This would be stretching the data too far in trying to make it fit a theory. It’s a little unclear as to what hypothesis is being proposed and ‘demonstrated’ by the graph.
I would love to find out more about what is being suggested here.
Audrina