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Debate House Prices
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House prices were 38% over-valued
brit1234
Posts: 5,385 Forumite
Me, the MPC man and the 38% house price fall
I wrote in February of my observation that house prices were 38% over-valued against average wages - a crucial measure that was brushed aside in the boom years.
'How much further will house prices fall? The best guide is the ratio between average earnings and average house prices. This is a measure of affordability. Between 1983 and 2001, before house prices started to climb, the ratio averaged 3.62. By July 2007 the ratio had reached 5.84; it has subsequently fallen back to 4.33.
'To get back to the long-run average of 3.62 from 5.84 implies a drop of 38%. So far we are down 26%, so it looks like there is more to go. The possibility is that house price falls will be even greater than that if the ratio falls below its long-run trend before recovering, as it did in the early 1990s.
House prices probably have a good way to drop yet. Lots of people may tell you otherwise − estate agents, mortgage brokers and bankers − because they have something to gain. My advice is just to look at the data.'
:T
Well said.
Andrew Oxlade, Editor, This is Money
Yet another economist saying house prices will fall, so:
People who say prices will rise
1, Estate agents
2, Buy to Let Companies
3, Housing Federation
People who say prises will fall
1, Economists
2, Risk Analyists
Strange now David Blancflower si saying how overvalued properties are when it has been his preasure whilst interest rate decisions that fueled the housing bubble in the first place.
I wrote in February of my observation that house prices were 38% over-valued against average wages - a crucial measure that was brushed aside in the boom years.
With a slight recovery helping house prices edge back to February levels to see a revered economist reaching the exact same conclusion. David Blanchflower (pictured), a labour market economist, is worth listening to: sitting on the Bank of England monetary policy committee, he was the first member to grasp the magnitude of the financial crisis and call for rate cuts in early 2008. His colleagues didn't listen and several months, one member was even calling for rate rises. He quit in June.
Blanchflower, writing in the Sunday Telegraph, at the start of August:
Blanchflower, writing in the Sunday Telegraph, at the start of August:
'How much further will house prices fall? The best guide is the ratio between average earnings and average house prices. This is a measure of affordability. Between 1983 and 2001, before house prices started to climb, the ratio averaged 3.62. By July 2007 the ratio had reached 5.84; it has subsequently fallen back to 4.33.
'To get back to the long-run average of 3.62 from 5.84 implies a drop of 38%. So far we are down 26%, so it looks like there is more to go. The possibility is that house price falls will be even greater than that if the ratio falls below its long-run trend before recovering, as it did in the early 1990s.
House prices probably have a good way to drop yet. Lots of people may tell you otherwise − estate agents, mortgage brokers and bankers − because they have something to gain. My advice is just to look at the data.'
:T
Well said.
Andrew Oxlade, Editor, This is Money
Yet another economist saying house prices will fall, so:
People who say prices will rise
1, Estate agents
2, Buy to Let Companies
3, Housing Federation
People who say prises will fall
1, Economists
2, Risk Analyists
Strange now David Blancflower si saying how overvalued properties are when it has been his preasure whilst interest rate decisions that fueled the housing bubble in the first place.
:exclamatiScams - Shared Equity, Shared Ownership, Newbuy, Firstbuy and Help to Buy.
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Comments
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Just because you keep repeating something does not make it right. I am agnostic on where house prices are going next but I reject any argument based on average income.
Key is affordability (use long term interest rates as a proxy for this), income elasticity of demand (the share of income people are willing to spend on housing increases as incomes rise) and expectations (if the best prediction is for prices to fall buyers will delay even if prices are low and vice-versa)I think....0 -
Can you explain why house prices haven't fallen at all in my area ? I'd love a 50% drop, but if they haven't dropped at all yet in the slightest am I waiting for something which is never going to come?
edit
I guess one way of looking at things is that house overall cost has come down significantly due to the drops in interest rates (ie 5% down to 0% actually is a saving of 50% over 25 years).Legal team on standby0 -
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Might help if you gave some clue as to what area you are referring to. tbh the only way what you have written will be accepted is if you give us a postcode so we can have a look at Property Bee.Can you explain why house prices haven't fallen at all in my area ? I'd love a 50% drop, but if they haven't dropped at all yet in the slightest am I waiting for something which is never going to come?
Otherwise I may as well say turnips cost two hundred quid a pop in my neck of the woods.0 -
Can you explain why house prices haven't fallen at all in my area ? I'd love a 50% drop, but if they haven't dropped at all yet in the slightest am I waiting for something which is never going to come?
Give us the 1st 3 figures of you postcode say TW8 and we will use property bee to check your statement.
I'm sure there have been drops, mortgage lending is national, not restricted to certain areas.:exclamatiScams - Shared Equity, Shared Ownership, Newbuy, Firstbuy and Help to Buy.
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No, because you haven't said where your area is ... maybe you're fooling yourself, we'll never know unless you post the first part of your postcode.Can you explain why house prices haven't fallen at all in my area ? I'd love a 50% drop, but if they haven't dropped at all yet in the slightest am I waiting for something which is never going to come?0 -
Just because you keep repeating something does not make it right. I am agnostic on where house prices are going next but I reject any argument based on average income.
Sorry but this is John Blanchflower saying this now. That is very significant change if you have been following the Bank of England interest rate votes by member this is a significant change.
Just face it the vast majority of economists predict continual falls, you can see this in their publications.
The people who predict rises strangly all have a vested interest. They need to talk up the market to reduce loses and gain profit against the fundamental economic situation.Key is affordability (use long term interest rates as a proxy for this), income elasticity of demand (the share of income people are willing to spend on housing increases as incomes rise) and expectations (if the best prediction is for prices to fall buyers will delay even if prices are low and vice-versa)
Key is also sustainability. Extremely low interest rates are not sustainable, it reduces people wanting to save. Banks need savings to lend. QE instead will just cause inflation needing rates to rise.
Now clearing prices in 2007 were not affordable hence all the cases of fraud and such like underpinning the market. Prices will correct down to a sustainable level and from history that will be at 3 - 4 times lending on salary. To dimiss this you risk more bubble economics.:exclamatiScams - Shared Equity, Shared Ownership, Newbuy, Firstbuy and Help to Buy.
Save our Savers
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Otherwise I may as well say turnips cost two hundred quid a pop in my neck of the woods.
i thought the picture in the opening post was of graham taylor, and this comment confused me even more. i suppose i should read properly, rather than quickly look at the pictures and read every 20th word.0 -
Yet another economist saying house prices will fall, so:
People who say prices will rise
1, Estate agents
2, Buy to Let Companies
3, Housing Federation
People who say prises will fall
1, Economists
2, Risk Analyists
Another article that I nod in a bit of agreement with. Then you post the above at the end which is just an ill-informed generalisation that, and I'm sorry to be a bit rude, makes you look a bit simplistic Brit.0
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