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House prices are overpriced by 30% IMO
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Average wage 1995 was 17,000, House Price average was 61,000
Average wage now is 28,000, House Price average now 180,000
The salary multiplier in 1995 being 3.58 average
Now its 6.42
Given the expectation that the government will print more money to bail out the crisis and not increase interest rates, we can expect high inflation but they will keep the IRs low thus devaluing the currency.
I would say given this bail out policy we can expect teh average person might be able to afford a 4.25 multiplyer without becoming bankrupt. Therefore the average house price should be 120K about 35% less then it is now.
I expect a drop of about 10-40% over the next 6 years, as somebody that bought in 2005 I am expecting negative equity, I definatly cant see it going up. I am not selling my house though as unlike 50% of the population I do not see it as a magical supply of money I can release more and more money against. I see it as the DIY/building work money pit that it is, just my home. I fully intend to take out no more debt and to overpay my mortgage by 3K every year, my other spare funds are for investing or fun fun fun. I can currently manage worst case scenario with IRs up to about 15% and this will only get better.
Just thought id share my sentiment. :beer:
Average wage now is 28,000, House Price average now 180,000
The salary multiplier in 1995 being 3.58 average
Now its 6.42
Given the expectation that the government will print more money to bail out the crisis and not increase interest rates, we can expect high inflation but they will keep the IRs low thus devaluing the currency.
I would say given this bail out policy we can expect teh average person might be able to afford a 4.25 multiplyer without becoming bankrupt. Therefore the average house price should be 120K about 35% less then it is now.
I expect a drop of about 10-40% over the next 6 years, as somebody that bought in 2005 I am expecting negative equity, I definatly cant see it going up. I am not selling my house though as unlike 50% of the population I do not see it as a magical supply of money I can release more and more money against. I see it as the DIY/building work money pit that it is, just my home. I fully intend to take out no more debt and to overpay my mortgage by 3K every year, my other spare funds are for investing or fun fun fun. I can currently manage worst case scenario with IRs up to about 15% and this will only get better.
Just thought id share my sentiment. :beer:
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Nice theory, but i think you'll find it's a little more complicated than that.
As a starter, you'll have to take into consideration the distribution curve of salaries (potentially not normal distribution, therefore can't always base your theory on averages), then look at population increase against time, age people are living to, number of split families requiring 2 family homes rather than 1 etc....
There's many many more, but that would take forever, and it's near impossible to write a formula to predict houseprices. (Everyone would be rich otherwise!)Should've = Should HAVE (not 'of')
Would've = Would HAVE (not 'of')
No, I am not perfect, but yes I do judge people on their use of basic English language. If you didn't know the above, then learn it! (If English is your second language, then you are forgiven!)0 -
Ignore.
No delete facility??0 -
Sharp intake of breath...this is almost a 'crash' thread.
Yep, the prudent saver will pay for all this whilst the smart escape with their ill-gotten massive gains.
I'm trying to stop myself from to wanting kill.
& don't forget that GB, TB & more of the swines will have investment properties.
what a stinking country!0 -
It's more useful to look at the mortgage payment to earnings ratio, rather than the house price to earnings ratio.
You are then taking account of affordability, which is after all the basis on which people decide whether or not they can buy a home.Trying to keep it simple...
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BOE base rates were only 0.5-1% above current levels, this is more then factored in by saying the average can afford 4.25 multiplyier as opposed to the 3.58 that was the case in 1995. Its definatly not the case that the average person can afford the 6.42 multimplier that is the current case. Not forgetting the increases in unsecured debt I would say the average person would definatly be maxed out on.
I do believe UK salarys follow a normal distribution probability profile hence my original calulations should not be a million miles from the mark. As for renting, I do believe that there isnt a major change in numbers since 1970, 1980, 1990.
I do believe that affordability has never been so low until you get back to 1990 when interest rates where at 15%. Lets say the average mortgage now is 7%, thus a 6.43 multiplier now is teh equivilent of a 3.25 multiplier back then, and there was a major major crash around that time. Although other industries were hit sparking recession, but whos to say there arnt going to be huge job losses over the next couple of years, the banks are saying they need to make major cuts as we speak.0 -
What's the point of using 1995 as a benchmark? That was just the tail end of a slump."One day I realised that when you are lying in your grave, it's no good saying, "I was too shy, too frightened."
Because by then you've blown your chances. That's it."0 -
EdInvestor wrote: »It's more useful to look at the mortgage payment to earnings ratio, rather than the house price to earnings ratio.
You are then taking account of affordability, which is after all the basis on which people decide whether or not they can buy a home.
Yep 1 year ago mortgage payments were much less than they are now and wages are a little more than they were then. Add to that credit tightening and less demand from investors and I rekon being 30% overvalued is pretty close.0 -
EdInvestor wrote: »It's more useful to look at the mortgage payment to earnings ratio, rather than the house price to earnings ratio.
You are then taking account of affordability, which is after all the basis on which people decide whether or not they can buy a home.
This new "affordability" benchmark usually means you're paying a great deal more over a typical 25 year mortgage term.
I guess buying a 2 bedroom flat on interest only over a 40 year term is "affordable" too.
"Affordability" only benefits the lenders.Hi, we’ve had to remove your signature. If you’re not sure why please read the forum rules or email the forum team if you’re still unsure - MSE ForumTeam0 -
I don't think we will see a 40% price drop in houses.
I'm fully expecting to see at least a 60% drop.
In fact, historically, an 80% drop wouldn't be outlandish.
We can't inflate our way to a soft landing like in the 80s as China is holding down our wage inflation.Bankruptcy isn't the worst that can happen to you. The worst that can happen is your forced to live the rest of your life in abject poverty trying to repay the debts.0 -
:rotfl: :rotfl: :rotfl: :rotfl: :rotfl: :rotfl:I'm fully expecting to see at least a 60% drop.
In fact, historically, an 80% drop wouldn't be outlandish.
We can't inflate our way to a soft landing like in the 80s as China is holding down our wage inflation.:wall:
What we've got here is....... failure to communicate.
Some men you just can't reach.
:wall:0
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