Economics, 3rd Edition

The Rise in House Prices

Panel (a) shows the rise in the average house price in the UK between 1983 and 2008. The average house price in 1983 was around 

£30,000 but by 2007 had peaked at around £190,000. Panel (b) shows the Standard & Poors (S&P)/Case–Schiller US National Home 

Price Index between 2000 and 2009 indicating the sharp increase in house prices in the first years of the noughties.

Q1

0.00

20.00

40.00

60.00

80.00

100.00

120.00

140.00

160.00

180.00

200.00

2000

2000

2000

2000

200

1

200

1

200

1

200

1

2002

2002

2002

2002

2003

2003

2003

2003

2004

2004

2004

2004

2005

2005

2005

2005

2006

2006

2006

2006

2007

2007

2007

2007

2008

2008

2008

2008

2009

2009

Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3

Q1 Q2

Q4

£200,000

£180,000

£160,000

£140,000

£120,000

£100,000

£80,000

£60,000

£40,000

£20,000

(b)

(a)

£0

1

983

1

984

1

985

1

986

1

987

1

988

1

989

1

990

1

991

1

992

1

993

1

994

1

995

1

996

1

997

1

998

1

999

2000

200

1

2002

2003

2004

2005

2006

2007

2008

Th Ri

i H

P

FIGURE 37.1

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CHAPTER 37  THE FINANCIAL CRISIS AND SOVEREIGN DEBT  785

have access to a mortgage, to do so. In the US it was those whose credit histories were very weak who 

were targeted. As market prices rose the desire to get on the housing ladder further fuelled demand. For 

those who had managed to access the market in the early 1980s, the amount of positive equity in their 

properties was such that it allowed some to borrow to fund home extensions, holidays, new cars, home 

improvements and for a growing number, a second property. This second property might be a retreat near 

the coast or in the countryside, an apartment in one of the many new developments in Spain or a property 

bought with the intention of letting it out and using the rent to help pay for the second mortgage.