House prices to suffer 'significant correction' in 2010

IveSeenTheLight

Graham_Devon wrote: »

LOL, what?

To try and explain

There is roughly 70% owner occupancy in the UK
Therefore only the top 70% earner need in theory to be able to afford property.
The average wage for a property buyer therefore should be calculated from the top 70% earners and discount the bottom 30% earners to get a true comparison between average earnings and average house prices.

It's just simple mathematics

IveSeenTheLight

sjaypink wrote: »

I think what you meant to say Dev, is: 'historically, have the affordability stats been based on UK average, or just homebuyer average, as you are suggesting ISTL?'

Very good point sjay, if you are comparing historical affordability then you need to compare on the same basis.

Unfortunately that basis has changed somewhat over the years from moving to one income mortgages

Womens wages have significantly increased over they years closing (although accepted not completely yet) the gap between male and female earning.

This significantly will affect the affordability ratio.

My initial point however was a response to simply comparing the average house price (70% ownership) with the average wage (100%) to which I was trying to clarify that only the top 70% of the waverage wage should in theory be utilised.

If the lower 30% is discounted, this rationalises why statistically (see CML) the actual obtained mortgage multiplier is far lower that the simple average mortgage - average earnings ratio

de1amo wrote: »

its affordability that deems if they are over valued-average wage against average value--if you say 161k is the average then a multiple of 4 salary to afford it would be 40k--and i used to think the average salary was near 20k

lankstar

If the averagge salary were £25k (I think £20k is a bit low nowadays) then removing the bottom 30% (assuming an average salary of £15k for them) would leave you with an average for the top 70% of £30k.

Proobably more accurate than most of the stats out there but a guess to get an idea nonetheless. If £40k were implied by the average UK house price (as in the earlier thread) then my revised figure of £30k would imply a potential correction of -25%.

I personally believe that there are a lot of sceptics out there waiting for an excuse for a crash bigger than the one just experienced. There are many factors in the market that potentially will lead to this excuse and once the media get hold of something significant it will knock consumer confidence and start something... just how significant is impossible to tell. After this double dip I'd say it will take a while to stabilise with a couple of years of drops before things start to level back out.

There are a few websites out there backing up the bubble or double dip theories and relate specifically to house prices; they're worth a look but are obviously very biased towards a crash.

I've just signed up to buy a new house (and given a £10k deposit to secure it!). The last thing I want to see is a crash right after I've spent every penny I have but this house is for the long term and I can;t hold out forever waiting for a crash. If the prices survive an interest rate hike (if we get one) and teh general election (especially if parliment is hung) then I'll be happy to follow the sale through and take my chances.

To conclude my ramblings I think there is little upside potential regarding property prices but large amounts of downside risk. The following factors all potentially will influence house prices and I'm sure there are many more that I haven't thought about:

1. Interest rates up (they can't go down!) - mortgage rates up - prices fall
2. BOE lending cut short - banks can't fund mortgages - less mortgages available and at lower income multiples and higher interest rates - standard variable rates increase as banks try to encourage people to switch their mortgages elsewhere
3. Government force banks' hands regarding reposessions when people are in arrears - these bad risks are mounting up but banks currently showing weak balance sheets are reluctant to repossess and write down the value of the asset (i.e. the house) backing their debt - this causes a loss on their balance sheet and weakens an already crippled balance sheet. The banks instead give people (commercial and residential) payment holidays rather than classing them in arrears which only adds to the problem. If one bank is caught out doing this and goes under it will have serious repercussions for the rest of the market and potentially cause a large crash as a wave of repossessions hit the auction houses.
4. Media shatter public confidence - do not underestimate the power of the media! One month of falls is making headlines; the world will be in another recession if we have another fall next month!

The forces influencing the housing market are currently complex and unpredicatable. One thing I think everyone can agree on is that they're not going to shoot up but there is a chance that they'll crash.

Someone remind me why I just bought a house again?

L*

markharding557

lankstar said:

Someone remind me why I just bought a house again?

To live in?good a reason as any.

IveSeenTheLight

lankstar wrote: »

If the averagge salary

No need to second guess.
The ONS has very good data.

http://www.statistics.gov.uk/downloads/theme_labour/ASHE-2009/tab1_7a.xls

All Employees mean average = £26,470

If you strip out into just full time earners
All Employes mean average = £31,916

Other useful information

Male Full Time mean average = £35,661
Female Full Time mean average = £26,000
Male Part Time mean average = £13,324
Female Part Time mean average = £10,500

So if you took the aberage house hold as being full time male and part time female the average would be £35,661 + £10,500 = £46,161.

Makes you realise why property is at the price level it is.

Graham_Devon

Yes, but if you use the prefered measure, median, i.e. what most people earn, instead of rolling in the averages including bonuses of bank boffins, it's a completely different story.

Suddenly you have £28,270 + £8,575 = £36845

This is what MOST people will be earning.

IveSeenTheLight

Graham_Devon wrote: »

Yes, but if you use the prefered measure, median, i.e. what most people earn, instead of rolling in the averages including bonuses of bank boffins, it's a completely different story.

Suddenly you have £28,270 + £8,575 = £36845

This is what MOST people will be earning.

But your including part time workers, students etc that are not going to be buying property.

As mentioned before, property ownership is approx 70% therefore its only the top 70% of earners that need to be able to afford

If anything, it might be higher than the mean average.

This has been explained to you many times before Graham.

DaddyBear

IveSeenTheLight wrote: »

No need to second guess.
The ONS has very good data.

http://www.statistics.gov.uk/downloads/theme_labour/ASHE-2009/tab1_7a.xls

All Employees mean average = £26,470

If you strip out into just full time earners
All Employes mean average = £31,916

Other useful information

Male Full Time mean average = £35,661
Female Full Time mean average = £26,000
Male Part Time mean average = £13,324
Female Part Time mean average = £10,500

So if you took the aberage house hold as being full time male and part time female the average would be £35,661 + £10,500 = £46,161.

Makes you realise why property is at the price level it is.

Shouldn't we be using median as the mean is distorted upwards by the top 5% of earners?

IveSeenTheLight

DaddyBear wrote: »

Shouldn't we be using median as the mean is distorted upwards by the top 5% of earners?

Only the top 5%.
Then it should be higher than the mean then.
The lower 30% of the population are priced out given that property is 70% owner occupied.
Lets face it, do you think that part time workers such as students should be buying property.
It's natural that these lower earners are excluded from the calculation

It's an ideallic but unrealistic world to think that the average property should be affordable to the median average earner.

For this to happen, competition needs to be reduced from buying property until there is a balance of supply and demand.

You need more suitable properties to be marketed in order for all to be able to buy.

sjaypink

IveSeenTheLight wrote: »

But your including part time workers, students etc

why not use median ft wage then?