3.5 x Average Earnings supported Average house prices of £200,000

LydiaJ

mp2 wrote: »

forget first time buyers. these are the stats for the entire market on a historical basis... <quotes statistics showing house prices are still massively over-valued>.

Well, yes, I agree with that - thanks for giving us some numbers.

However, most of us have seen that sort of information lots of times and I thought Dan: was raising a different (but related) point - that home buyers (whether FTB or movers) are generally wealthier than average.

Statistics about average income of the three categories (FTBs, movers & the general population) not only tell us how stupidly expensive houses are, but also give some indication of how badly the poorer sections of society have been priced out of the market. I would expect the difference between average incomes of buyers and average income of the population to be bigger during a boom and smaller at the bottom of the crash. That's why I thought such stats might be interesting.

dopester

"We were a touch optimistic when we started selling it at £825,000 in May," says Neil, "but we have dropped the price in two stages.It is now on at £650,000 with Hamptons (01483 417222) which, says Neil, makes it "a bargain for somebody".

Neil is looking forward to living somewhere "a bit more manageable". In fact, Bramshott offers the kind of luxurious lifestyle for fit, high-performing elderly people that would have been unimaginable even half a century ago. Fancy a dip in the hydrotherapy pool, a gin and tonic in the clubhouse, a visit to the GP on the doorstep, a stroll through the meadows and woods? The price of all this is £295,000-£315,000 for an apartment, and £430,000-£499,000 for a cottage (01428 722800).

"The over-65s own £1,100 billion of housing equity in this country," says Richard Donnell, director of the property analysts Hometrack. "This means they constitute 25 per cent of the value of the housing market."

http://www.telegraph.co.uk/property/retirementproperty/3477889/Retirement-property-When-down-sizing-means-going-up-in-the-world.html

Can you believe that haha. 25% of the equity "values."

For many, it is all they will have ever known - cold war inflation pushing their property "values" up to incredible heights. The boomers properly hog much of the rest of the equity "values."

I'm not convinced there is anything near the sufficient number of people to benefit from the "trade-up" (crash makes it cheaper to trade up) to a much grander property - to have any effect on halting the power of this crash.

Including the boomer.

They may on the whole be asset rich but many will be cash poor. Tapped out.

Also crucially, even if they have not MEWed and have lots of equity in their existing homes, they may not want to risk of taking on further debt burden in a deflationary world to trade up - together with losses in shares/pension-pot values/ and low interest rates on savings + job insecurities even for the boomers.

So the crash at the top end of the market will continue, seeking buyers, with fewer able or wanting to trade up.

More and more reductions at top end levels of the market, until the prices come down to really pressure the values of the boomers' own property levels. Amognst the boomers there will be many wanting to sell... but not all wanting to trade up, but to trade down, and forced to discount further themselves... in turn pressurising all the levels below.

For older owners, housing has been a subsitute for financial savings. Before these paper windfalls generated during the seventies and eighties can be converted to cash, however, new buyers must be found. Most of these buyers will not have sufficient cash reserves to pay 50 percent down.

Therefore mortgage lenders will have to absorb a growing share of the housing market risk for prices to remain stable. They are unlikely to do this. Losses on real estate loans will be the main cause of increasing losses in the banking system.

Creditors normally react to rising losses by curtailing lending, imposing higher qualifications on borrowers, and raising loan rates higher than they would be otherwise.

As this trend becomes apparent, aging homeowners, who are depending on their homes to provide retirement security, will try to sell. This will push prices down further. Paul Hewitt estimates that "the predicted trade-up market" among the Baby Boom generation (born 1946-1964) may not materialise if a growing number of middle-class boomers elect to remain in housing they consider adquate, rather than risk their equity in large luxury homes.

ukcarper

Is it surprising that 25% of the market equity is held by people over 65 as most people over 65 have paid of their mortgages.

StevieJ

chucky wrote: »

a question for you - have you taken the average house price using a mean or a median average?

Everyone is at it mix and match to get the figures they want:eek: The Halifax say the figure was 5.86 in June 07 and 4.41 now.
You could also remove London from the averages and remove the low wages of people that traditionaly never buy and you would come up with a different figure again.

dopester

ukcarper wrote: »

Is it surprising that 25% of the market equity is held by people over 65 as most people over 65 have paid of their mortgages.

Fair enough.. I realise that. It is the value of the "market equity" which is the interesting thing. This house has seen it's value go up 1000% since the early 80s, even though the owner has only ever fitted a new kitchen, replaced carpets, had a new driveway.

The pressures on the top-end of the market must be growing increasingly intense - chasing fewer and fewer people with the appetite to buy, the funds to buy, the willingness to take on more mortgage debt to buy or tradeup, and reluctance of lenders to lend increasing sums. Also the reluctance of taking on a bigger home and all that comes with it in terms of running costs.

My dream house on Rightmove has been cut from a 2007 asking price of £1.65 million, to £975,000 today. And that is someone trying to sell quality home in a great area and reducing their asking price - probably being realistic because they have little debt and saw the values rise just by living there over the long term.

The stubborn seller who need to get peak price for top-end homes, are going to be left increasingly stranded and in big big big trouble. And it isn't like younger entrants to the job market, and those still in jobs, are set to have big-time city-boom bonuses as regulation kicks in, to say nothing of the unemployment and paycuts and deflationary vortex we're going in to.

'There have been times when work was slow and I increased our mortgage to pay some debts,' says Cheryl, 'but you can't go on adding to your home loan for ever.

'We also increased it to fund some home improvements, but now we owe a massive £600,000 - that's a lot of money if interest rates were to go back up.'

Steve doesn't want to sell the house below a price the couple received when they had a remortgage valuation in mid-2006. He maintains that prices would have risen since that time and then fallen back down towards it.

'The last time we sold we didn't budge on price,' he says. 'We were lucky - the buyers didn't quibble because they liked the property. This house is in one of the largest plots in the area and I think it is impressive from all angles. If someone wants to make an offer we'll consider it, but we won't market it for less.'

KEY FACTS:

• Price: £1.75m.
• Bedrooms: Seven
• Reception rooms: Large kitchen/ breakfast room, sitting room, dining room, additional kitchen/diner and sitting room in the annexe.
• Bathrooms: Two plus downstairs cloakroom.
• Outside: Vast garden on three levels with tennis court and summerhouse.

http://www.dailymail.co.uk/property/article-1164097/Im-making-mind-sell-How-Cheryl-Baker-selling-properties-beat-crunch.html

dopester

How did this slip me by. I didn't see it widely reported UK side.

London’s High-End Home Prices Plunge Most in 33 Years (Update2)

By Peter Woodifield

March 9 (Bloomberg) -- London luxury home prices fell the most in more than three decades in the year through February as the credit crunch deterred wealthy buyers, property broker Knight Frank LLP said.

The average value of homes costing more than 1 million pounds ($1.4 million) in London’s most expensive neighborhoods dropped 23 percent, London-based Knight Frank said in an e-mailed statement. That’s the biggest annualized decline since Knight Frank started compiling the index in 1976.

“It is proof that even prime markets are not immune from bubble and bust,” Liam Bailey, head of residential research at Knight Frank, said in an interview.

bloomberg.com

And that is in London - the major financial centre, as owners adjust to the new reality in trying to sell. Kiss the blade for high end house values outside London.

dopester

Dan: wrote: »

For a start, average incomes of home-buyers are different from those of the population as a whole. At the peak in the summer of 2007, the median income of a first-time buyer was £35,600; for movers, it was £45,600, compared with less than £25,000 for the population as a whole. This meant a median loan-income ratio for first-time buyers of just under 3.4, while for movers it was just over 3. Borrowing at this level supported an average house price of £180,000 to more than £200,000.

http://business.timesonline.co.uk/tol/business/economics/article5948679.ece?Submitted=true

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Hopefully this clears a few things up about the 3 x Income saga.

If your pulling in £35,600 as an FTB I'd say you're doing pretty well for yourself - and maybe you'd assume prosperous economic conditions would continue to keep your salary at that level or increase it.

Doesn't around £35K put you in the top 10% of earners. On your info of £35,600 with a 3.4 multiple, I think they'd also have to put in a fair deposit.

£180K to around £200K... you'd be hard-pressed to find a decent home in a decent area for that kind of money in the summer of 2007.

mbga9pgf

dopester wrote: »

If your pulling in £35,600 as an FTB I'd say you're doing pretty well for yourself - and maybe you'd assume prosperous economic conditions would continue to keep your salary at that level or increase it.

Doesn't around £35K put you in the top 10% of earners. On your info of £35,600 with a 3.4 multiple, I think they'd also have to put in a fair deposit.

£180K to around £200K... you'd be hard-pressed to find a decent home in a decent area for that kind of money in the summer of 2007.

FTB salary figures include approximately 20% returning sellers (those that STRd for more than 6 months).

As for their average buyer figures, all they prove is the majority of people who bought in 2007 were on the scam... Or they couldnt have got such big mortgages.

Dan:_4

mbga9pgf wrote: »

As for their average buyer figures, all they prove is the majority of people who bought in 2007 were on the scam... Or they couldnt have got such big mortgages.

A rather rash statement. How do you know the majority of people's finances?

dopester

I rushed my last post in preparation of getting set up to watch The Apprentice (durrrr the girls, "We're within budget!" - and why the hell did the male project leader leave the station 2 man shoe-shine gig after raking in £60-70 in just one hour?)

A property costing 100,000 pounds in 1976 when Knight Frank started its index peaked in value at 3.99 million pounds in March. By the end of last month it was worth 3.08 million pounds, the equivalent of losing about 2,720 pounds in value every day for 11 months.

“Prices got too far ahead of themselves and have corrected very quickly,” said Bailey.