One of the reasons London house prices have risen so sharply in the last few years, both in absolute terms and in comparison with the rest of the country, is the enormous appetite of foreign investors. And in part, this has been reinforced by the fact that the pound fell so sharply at the very start of the financial crisis. A 25% depreciation in sterling meant that for those who earn their money in dollars or euros, suddenly London property was a comparative bargain.
As I wrote a couple of months ago, this relative bargain was still in place even into last year, with London house prices still cheaper in dollar terms than they were at their previous peak in 2007. Since then, two things have happened: house prices in London have continued to climb, and, even more importantly, the value of the pound has strengthened yet further. The upshot is that now, at last, London house prices are more expensive in dollar terms than they were back in 2007.
They are also significantly more expensive in euro terms:
Although in terms of Chinese yuan they are still considerably cheaper than in 2007:
The significance is twofold: first, it helps explain why house prices in London have risen so sharply, despite the fact that for those who earn their money in sterling they seemed barely to dip at all during the slump of 2008 (see the chart below, which shows the profile of house prices in sterling). Second, the fact that prices in dollars are now higher than in 2007 underlines the fact that the comparative bargain created by the pound’s depreciation is coming to an end.