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Debate House Prices
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Wages compared to house prices graph
RDB
Posts: 872 Forumite
But here's the thing: while the average house price in the UK is about £150,000, the average wage is only about £25,000. Three times that is £75,000, plus deposit. So roughly speaking, a return to three times earnings means a 50% drop from here.
...but will they really drop that much?
Will prices really fall that far? Let's have a look.
I'd like to thank Scott Adams for sending me this chart. It shows the proportional rise in wages (blue line – data from National Statistics) and house prices (red line – data from Nationwide) since 1971, if you index each to £100 in 1971. As you can see one has become way out of kilter with the other – house prices have risen way faster than average wages. Either wages have to rise from here – only possible with a massive boom or hyperinflation, neither of which looks imminent – or house prices have to fall further.
The chart was put together at the peak of the boom, so that pink line is already on its way back down to its home by the blue. In fact notice that after the 1989-94 correction, the pink line actually went below the blue. In other words, the correction overshot to the downside as house prices fell and wages continued to grow.
...but will they really drop that much?
Will prices really fall that far? Let's have a look.
I'd like to thank Scott Adams for sending me this chart. It shows the proportional rise in wages (blue line – data from National Statistics) and house prices (red line – data from Nationwide) since 1971, if you index each to £100 in 1971. As you can see one has become way out of kilter with the other – house prices have risen way faster than average wages. Either wages have to rise from here – only possible with a massive boom or hyperinflation, neither of which looks imminent – or house prices have to fall further.
The chart was put together at the peak of the boom, so that pink line is already on its way back down to its home by the blue. In fact notice that after the 1989-94 correction, the pink line actually went below the blue. In other words, the correction overshot to the downside as house prices fell and wages continued to grow.
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Comments
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As a non selfish house owner, I really hope they drop back to levels where normal people dont have to commit a massive amount of their available funds solely on shelter, and can both buy a house and have a decent standard of living too.
There a huge amount of very selfish and quite frankly stupid people in this country who think HPI has made them richer.
House price inflation and the credit bubble that supported has burst, and thats why we are in a huge reccession. And thats why houses will deffinately return to normal values.Hi, we’ve had to remove your signature. The one where you showed us Dithering Dad is a complete liar. If you’re not sure why please read the forum rules or email the forum team if you’re still unsure - MSE Forum Team0 -
It would be interesting to see a graph of house price against average earnings of people actually buying a house. There will be a lot of people on low wages who will never buy a house which brings the average wage down.0
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Will they really drop that much? I am no property expert but somehow, I don't see people SELLING for that low a price - £75000. literally everyone who's bought a house in the past 10 (??) years will be in negative equity and could possibly not be able to sell at such a price.0
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It would be interesting to see a graph of house price against average earnings of people actually buying a house. There will be a lot of people on low wages who will never buy a house which brings the average wage down.
But that was always the case - the older figures don't exclude people too poor to buy a house - why should the recent ones?
House prices relative to incomes are going to have to return to the mean.0 -
There is no correct or normal level for house prices, the market is cyclical, at the moment they are going down, at some point they will head back up, probably won't reach reach true 2007 levels though, but I think at some point in the next 15 years it will get to about 10% (of the true ie including inflation 2007 level)
http://www.housepricecrash.co.uk/graphs-average-house-price-to-earnings-ratio.phpChuck Norris can kill two stones with one birdThe only time Chuck Norris was wrong was when he thought he had made a mistakeChuck Norris puts the "laughter" in "manslaughter".I've started running again, after several injuries had forced me to stop0 -
Will they really drop that much? I am no property expert but somehow, I don't see people SELLING for that low a price - £75000. literally everyone who's bought a house in the past 10 (??) years will be in negative equity and could possibly not be able to sell at such a price.
The price of houses on the market won't drop as much but the price of house that actually sell will.
The market fragments into two types of sellers
1. those that won't reduce... people who just 'know' that their house is worth a lot... people in negative equity, people only want to move but dont actually need to move.. etc
and
2. those who will accept a lower price... people moving because of job relocation, deceased people houses, repossessions, people with financial difficulties and of course realistic people who want to move up the chain and know its only the difference in price that matters
So the market stagnates as there are few houses priced reasonable and buyers are content to wait so they 'know' that it will be cheaper in a few months.
Eventually things start moving... those retired folk who have been waiting 2-3 years to sell up and move near the grandchildren decide they have waited long enough and they reduce the price, those who have waited for the bottom of the market may want to start a family and so now decide to buy... the economy picks up and more people get jobs etc.
So a million different reasons but eventually sellers reduce prices and buyers decide to pay a bit more ... until the next boom of course.0 -
£75,000
I'll have a few please.
Association between average wage and average house price really needs to stop. It is totally unrealistic.0 -
£75,000
I'll have a few please.
Association between average wage and average house price really needs to stop. It is totally unrealistic.
You may well be able to have 'a few' mitchaa, however, there is nowhere near enough cash buyers to prop up prices, having said that, it's going beyond my bearish attitude to suggest we will have 75k average house prices, it would take another huge meltdown on top of what we currently have to send prices this low.0 -
You may well be able to have 'a few' mitchaa, however, there is nowhere near enough cash buyers to prop up prices, having said that, it's going beyond my bearish attitude to suggest we will have 75k average house prices, it would take another huge meltdown on top of what we currently have to send prices this low.
yesterdays mortgage numbers for house purchases was up month on month so it's not just the cash buyers.
i know it's nothing compared to last year or 2007 numbers but there is an increasing apetite to purchase property however small it is. it may also be temporary, monthly numbers are interesting but don't tell us everything.
ps. it is no sign of recovery0 -
The graph is certainly interesting, and shows the correlation between wages and house prices doesn't really get bucked.....apart from the start or 2000, where it went insane.
There will be many people telling others this cannot be reversed, history cannot repeat itself. Most of them will have vested interests. Either landlords, or people strangled by high mortgages as they went after the bigger homes and rode the boom.
What happened before 1970 though. Why does the graph start there?
The problem we will have this time around, is the massive drop that prices will have to achieve to get back to those levels. That may be impossible.0
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