House prices could fall another 40% from here.

kennyboy66_2

GDB2222 wrote: »

Fine, so we are looking at the same figures then. It seems strange that the writer of the article this thread is about claimed that Halifax don't publish the figures, when they clearly do. It rather destroys his credibility, doesn't it?

Just a bit.

Would have been pretty easy to construct the case that prices have say 25% to fall using HBOS figures.

Why bother fiddling them to suit a 40% headline ?

StevieJ

GDB2222 wrote: »

Fine, so we are looking at the same figures then. It seems strange that the writer of the article this thread is about claimed that Halifax stopped publishing the figures, when they clearly still do. It rather destroys his credibility, doesn't it?

It's also strange that he calculates a figure of 5.16 and HBOS calculate 4.36. Clearly, there is a difference in the way this is calculated.

Even so, a ratio of 4.36 is definitely above average. So, people buying now are paying over the odds. It's difficult to know what the average really is. 4.0 is quoted, but that includes the recent bubble. The long-term average excluding that is around 3.5. Either way, the ratio needs to dip below the average some of the time, or else it wouldn't be the average. However, a 40% drop (as the author claimed) would make the ratio 2.6, or even lower if there is some wage inflation.

4.36 may be above the average but interest rates have been well below the average for many years now. This means that the % of pay to support the mortgage is now 30.56%, Average is 37.29% and in 1990 it was 65.5%.

GDB2222

StevieJ wrote: »

4.36 may be above the average but interest rates have been well below the average for many years now. This means that the % of pay to support the mortgage is now 30.56%, Average is 37.29% and in 1990 it was 65.5%.

Agreed, that's the affordability argument. Undoubtedly, the 65.5% got the price collapse moving at the end of the 80's, but the collapse kept on going all through the first half of the 90's even when the mortgage was costing under 25%. Besides that, prices kept rising through 2006, despite mortgages costing over 40% (or more like 50% in the SouthEast).

There's also the argument that interest rates can only go up from here, really, so mortgage costs can only rise. I know that's not definite, but it seems likely.

In the end, a lot of this is down to confidence. In the 90's, house prices kept dropping until people felt comfortable with the new level. That's my recollection, anyway.

GDB2222

I would just like to add that house prices at 6 x earnings is unstable, like a pencil balanced on it's blunt end. It can stay there a while, but sooner or later something will come to topple it. Where we are now is still pretty high.