Bulls, watch this video and try and counter the argument...

bubblesmoney

we need to consider earnings in relation to house price rises.

for example if house prices rise disproportionately to incomes it WILL become unsustainable. it is mathematically impossible for any such ponzi scheme to go on for long due to widening disparity that occurs with time.

let us for example take a house costing £100,000 on year 1 and price keep appreciating for calculation purposes at 10% per annum but salary rises only happen at 5% per annum. if both prices and salary rise equally then its not much of an issue but probably inflation will be an issue there.

so...
year 1 - house costs 100,000£ and salary 25,000£ with price to earnings ratio of just 4 (present salary multiples in all regions of uk for average salaries are higher as shown by property market analysis reports for the world, link was given by me in one of my earlier posts a few months ago)

all calculations done using calculators available at http://www.online-calculators.co.uk/interest/compoundinterest.php

year 2 - house price will be 110,000£ but salary will be £26250

but if we take a working life of 40 years and use that for calculations. at the end of year 40 the same house should be worth by the power of compounding interest a phenominal sum of £4,525,925.56 for house price but salary will be £175,999.72 per annum giving a earnings to house price ratio of 25.72 !!!! so house prices in the long term can never mathematically rise above affordable earnings-house price ratio. it can rise temporarily by the availability of easy cheap credit but even that will get unaffordable soon due to the power of compounding interest!!!

even if one individuals salary kept rising in equal proportion to projected 10% (or what ever percent) annual house price appreciation, but the rest of the populations salary growth would be lower so no one else would be able to afford such price appreciations in the long term. Too bad the Wilsons or other property investment consultants couldnt understand such basic mathematics or maybe they did understand the maths but deliberately kept misinforming people in their investment scheme propoganda where they advertised continuous property price appreciations to defraud the investors. anyone want to bet whether they were ignorant or trying to defraud the investors especially because they were maths teachers before their property ventures???

moral of story - average house prices in the longer term can never rise disproportionately to average earnings. it is a mathematical certainity. but prices will always fluctuate in the short term over many years and how one buys and sells during those price fluctuation cycles that occur periodically can either make or break your finances for a long long time.

hence why the usa prices have always fluctuated around a naturally affordable pattern. the same WILL be true of any other country including the uk although the price baseline might be slightly different based on local factors.

food for thought.

ps: i would be interested to know from the economists on here if my calculations are wrong

chucky

stevetodd wrote: »

This video is about the states, completely different market to over here

but don't let that get in the way of a HPCer trying to create some panic amongst people.

kt63_2

average house prices in the longer term can never rise disproportionately to average earnings. it is a mathematical certainity.

That's probably overstating it a bit. Earnings are certainly important, but are only one part of the really important factor which is affordability. Even if average earnings stay the same, affordability can increase (or decrease) for a number of reasons:

1) Changes in interest rates
2) Changes in household earnings. Household earnings have risen faster than average earnings in the last 30 years due to an increasing number of women choosing to work.
3) Changes in the prices of essential items - e.g food, energy. When these rise people have less money left to spend on their mortgages, when they fall people can afford bigger mortgages.

Of course earnings are going to be a more important factor in the coming years as lenders are going to stick more rigidly to lending smaller earnings multiples than they have in the last ten years or so. Nevertheless, it is over-simplifying things to say that in the long run earnings are the only variable that dictates house prices.

Another factor that should be mentioned (from the UK perspective) is the supply constraint caused by planning controls which have limited the number of new houses being built.

bubblesmoney

macaque wrote: »

I hate to say it but I agree with you. It is ignorant and biased anti socialist propaganda.

I like anti socialist arguements to be fair, honest and reasonable. It doesn't take any more effort to do it properly.

it is not anti socialist. higher property prices just help the RICH and not the poor. this type of bailout socialism just helps the rich get richer. ie the bankers etc.

does it help the man on the street or small businesses no as due to the higher property prices they cant buy and they rent or pay bigger mortgage payments.

this type of socialism is an excuse to bailout the rich ie banks. think about it, how many billions do these banks now get from tax payers, how many billions have the defense industries who always privatise the profits get from taxpayers. have any charities doing good work or any educational institutions got such bailouts. think about how many peoples education or health that could be funded with these millions and billions of payouts.

the govt tells there is no money and gives lower paid workers below inflation pay rises yearly. then the same bloody govt gives bonuses of 10-30% even now for the bigwigs in FSA, plus for fred goodwin full pension by literally doubling fred goodwins pension by using discretionary powers even though he was not of retirement age instead of just firing him from his job. how many people who are going to get laid off from RBS from the lower level jobs are going to get full pensions if they are lower than retirement age like fred goodwin. you can bet no one will get full payments, such generosity is just reserved for the rich and well connected. socialism my ar*e.

do any small businesses get such bailouts, no they go bust because they dont donate money to political parties or host them on yatchs in corfu or later give these politicians hundreds of thousands of pounds for dinner speeches etc. so thats why the small businesses dont get the bailouts and the rich get the bailouts instead. its all you scratch my back and i will scratch yours.

that kind of bailout socialism is a lousy excuse to rob the poor and feed the rich. Nulabour is outdoing even the tories at robbing the poor to feed the rich.

bubblesmoney

kt63 wrote: »

That's probably overstating it a bit. Earnings are certainly important, but are only one part of the really important factor which is affordability. Even if average earnings stay the same, affordability can increase (or decrease) for a number of reasons:

1) Changes in interest rates
2) Changes in household earnings. Household earnings have risen faster than average earnings in the last 30 years due to an increasing number of women choosing to work.
3) Changes in the prices of essential items - e.g food, energy. When these rise people have less money left to spend on their mortgages, when they fall people can afford bigger mortgages.

Of course earnings are going to be a more important factor in the coming years as lenders are going to stick more rigidly to lending smaller earnings multiples than they have in the last ten years or so. Nevertheless, it is over-simplifying things to say that in the long run earnings are the only variable that dictates house prices.

Another factor that should be mentioned (from the UK perspective) is the supply constraint caused by planning controls which have limited the number of new houses being built.

supply constraint??? come again whyt are there so many houses not sold yet on the market? why are builders going bust because houses are unsold??? why are so many thousands of flats empty???

guess these supply constraint theory merchants just used every adult person needing individual 4b detached houses as a model to base supply models on and not that families need houses. loads of houses will be available for rent or purchase in most cities in the uk. i dont see where the supply problem was generated from. as for land shortage, one just needs to take a train trip from the north most tip of scotland to the south most tip of england and see how much vacant land one see and how many people one sees and compare this to other countries. the problem maybe that there is a few rich owning most of the land with very little for actual development.

kt63_2

the problem maybe that there is a few rich owning most of the land with very little for actual development.

That, indeed, is the problem.

Radiantsoul

bubblesmoney wrote: »

inflated adjusted house prices will have a relationship with price to earnings multiples. when the multiples go high then it puts a bigger debt burden and will be unsustainable in the long run.

That might be true, but the level of price/earnings can change over time. I don't see that there is a logical reason why the cost of housing cannot rise quite significantly as a proportion of income.

Radiantsoul

kt63 wrote: »

The thing is that inflation doesn't happen equally across all assets / commodities etc... I agree that house prices are going to continue to fall. What I question is the notion that the average house should always have a value of $100,000 (in real terms) or some other set value. I would argue that the price that people are willing to pay for a house should have risen over the last 100 years due to lower interest rates, longer life expectency, higher levels of wealth etc... A nicer house is always high on people's list of "wants" so it is unsurprising that as a population gets wealthier people want to spend that weath on property. As their is a limited supply of property, prices will rise.

I think that the rise in property prices over the last 10 years has been crazy and obviously fuelled by too much credit. I expect property prices to continue to fall substantially in the short to medium term. What I am arguing is that the base line to which they will fall might be a slowly rising line, rather than a flat line.

I tend to agree. I think that people are prepared to spend a greater proportion of their income on better housing.

The credit boom has created a construction boom which has generated a lot of new housing. I am not sure if this is such a bad thing as this housing is of reasonable standard and socially benefical. Certainly a lot of city centres have been regenerated. Take a look at Salford Quays for example, 10-15 years ago it was little better than a slum. Now it has excellent houses, offices, shops, etc. They may not be worth as much as they were 3 year ago, but they do seem to me to offer a social benefit.

mitchaa

mbga9pgf wrote: »

I was warning people from 2005 that this would all end in tears, If only they had listened....

http://www.youtube.com/watch?v=ca_aOvZPh-g

But yet the market never 'crashed' until nearly 3 yrs later so your advice could have cost someone 3yrs worth of valuable equity, possibly £100k+ if they STR in late 2007.

I've been hearing of HPC from people like yourself as far back as 2002;)

itsallagame_2

mitchaa wrote: »

But yet the market never 'crashed' until nearly 3 yrs later so your advice could have cost someone 3yrs worth of valuable equity, possibly £100k+ if they STR in late 2007.

I've been hearing of HPC from people like yourself as far back as 2002;)

Yup, and don’t you think if something had been done then to constrain the madness, this global mess might have been avoided?

Buy the way your sig is interesting, would it be more realistic if you got 2 or 3 estate agents round to value your property at a price they could actually sell at?
Wouldn’t cost you nothing, might go up a bit more