"Sober" house price growth ahead, only 40% in real terms...

HAMISH_MCTAVISH

Arch-Angel wrote: »

If there's a 40% HPI over the next decade, but a 6% wage inflation over the next period (bit extreme I know) then the housing marking will have overheated and a crash is on the cards.

I rather suspect that the next 20 years will see a new average wage to income multiple being seen as the norm.

At the moment, most people consider 3.5 times to 4 times income as "normal". However this has been heavily influenced by the 3 decades of the highest interest rates in the BoE's 350 year history, from the late 60's to the late 90's.

The average rates over the last decade of around 5% are far more in line with the long term average than the 10% to 15% rates that led to a multiple of 3.5 times income being considered normal.

The days of 15% base rates are gone for good. As are the days of 3.5 times average full time male (as per the indices) income being considered normal for house prices.

I'd guess 5 to 7 times average full time male income would be typical 10 to 15 years from now, versus the current state of 4.3 times. Probably worth noting it was also around 4 times in the early 1950's. So to go from 4 times to 7 times in 70 years does not seem excessive.

Graham_Devon

HAMISH_MCTAVISH wrote: »

I rather suspect that the next 20 years will see a new average wage to income multiple being seen as the norm.

At the moment, most people consider 3.5 times to 4 times income as "normal". However this has been heavily influenced by the 3 decades of the highest interest rates in the BoE's 350 year history, from the late 60's to the late 90's.

The average rates over the last decade of around 5% are far more in line with the long term average than the 10% to 15% rates that led to a multiple of 3.5 times income being considered normal.

The days of 15% base rates are gone for good. As are the days of 3.5 times average full time male (as per the indices) income being considered normal for house prices.

I'd guess 5 to 7 times average full time male income would be typical 10 to 15 years from now, versus the current state of 4.3 times. Probably worth noting it was also around 4 times in the early 1950's. So to go from 4 times to 7 times in 70 years does not seem excessive.

I've just done a calculation thing.

7x 30k would equal £210,000 leant.

After tax, and allowing for no pension, you'd have 22.6k left, probably 22k next year.

Thats £1833 per month income.

The payments on the 7x mortgage would be:

5% rate - £1241 leaving you £592 per month to pay for everything else.

6% rate - £1368 leaving you £465 per month.

8% rate (my mortgage was 7.75% when BOE rates were 5.75%) - £1639, which leaves you reposesed.

At the 5% point, your basically broke if you need to buy food and pay for council tax and live.

Single / Joint income makes no difference if it's 7x income.

At 3.5x the 30k wage @ 8%, you would still be left with £1014 per month, enough to live.

I can't really see what you have said catching on in all honesty.

Mr.Brown_4

Do you have kids Hamish? Do you think they will want to be just like their dad? How on earth are they going to afford to buy into your dream world?

JonnyBravo

Yakubu22 wrote: »

But if the average wage only increases by 3% then a 4% HPI is not sustainable in the long term

(Before I start: Please note I'm not agreeing with Hamish's article that we'll see 40% real term growth over the decade.)


Do the majority of people understand this to be a fatuous statement?

The two things don't necessarily follow at all.

What if the gap between rich and poor gets wider skewing av incomes?
What if the population grows twice as fast as the housing stock?

There are many scenario's which mean this COULD come to pass and be sustainable.

nembot

nollag2006 wrote: »

Great post AA

I think all parties on here agree that YOY double digit price rises are unsustainable in the long term.

As Hamish pointed out a 40% increase in real terms would be welcomed by most in UK society

That's an interesting concept as I too would like a 40% increase, but... is it right to totally out price the next generation and divide the nation yet further for our selfish gains today?

Why should prices go up above inflation (excluding renovation etc) which is typically what 3%?

Why are high prices a good thing?

None of the above have been answered to my satisfaction, ever.

Be nice Chucky

stueyhants

I suppose if rates stop low (3-4% tracker rates) and mortgages were stretched out to 50 year terms anything is possible really? Would be miserable for FTBs, but at least home owners could sit smuggly knowing on paper their wealth was increasing.

chucky

nembot wrote: »

Why should prices go up above inflation (excluding renovation etc) which is typically what 3%?

"should" doesn't really come into it - but this is what happens in a market where something is bought and sold.
there are factors outside of this that also push it above inflation - credit, demographics, foreign buyers, groups of people earning above average earnings and of course investors etc etc..
right or wrong it's what happens.

nembot wrote: »

Why are high prices a good thing?

in general terms there not a good thing but a large number of people do well out of it and do create real wealth from it regardless of what people may say.

nembot wrote: »

None of the above have been answered to my satisfaction, ever.

Be nice Chucky

that's because you don't read my threads properly[STRIKE]botman[/STRIKE] nembot