Understanding Real vs Nominal House Prices
When analysing long-term trends in the housing market, it's crucial to distinguish between nominal and real house prices. Nominal prices reflect what buyers actually pay at the time of purchase — they’re influenced by inflation and changes in the purchasing power of money. Real prices, on the other hand, are adjusted for inflation to show how property values have changed in constant terms over time.
For example, a £200,000 home purchased in 2010 and a £300,000 home purchased in 2025 might appear to show a 50% rise in value. However, after adjusting for inflation, the real increase could be much smaller — or even negative — depending on the rate of consumer price growth.
Comparing inflation-adjusted and nominal house prices reveals periods where property values outpaced or lagged behind the broader economy. Periods of high inflation can make nominal growth appear stronger than it really is, while low-inflation environments can expose periods of genuine real appreciation.
Since 2020, UK house prices surged nominally due to supply shortages and pandemic-driven demand, but adjusting for CPI shows that much of that rise was eroded by the sharp increase in inflation during 2022–2023.
Key Takeaways
- Nominal prices show the cash value; real prices reveal the true purchasing power of housing.
- High inflation can mask stagnation or decline in real house prices.
- Real house prices are better indicators of long-term affordability and wealth growth.
- Comparing CPI with the UK HPI gives a clearer view of housing performance relative to inflation.
Data Sources
Based on the UK House Price Index (UK HPI) published by HM Land Registry and the Consumer Price Index (CPI) published by the Office for National Statistics (ONS).