House Prices and Disposable Income.

Really2

Ok on the savings thread I saw some data and did a fag packet calculation.

Really2 wrote: »

I just tried something. Gross Disposable income at the end of the nominal bottom in the last crash was £110884m

Now it is £242930M so disposable income has gone up 220%

House price at the bottom 1993 was £50K

So X the average house 1993 (£50K) + increase in disposable income (220%) = £160K average house.

I think the link to housing cost has got to be disposable income, nothing to do with the average wage etc.

The figure is far to close to be a fluke, Just done a few dates and it seems to be very close.
Interesting.

Data links Disposable income
http://www.statistics.gov.uk/STATBASE/tsdataset.asp?vlnk=221
Nominal house prices
http://www.mortgageguideuk.co.uk/housing/uk-house-price-index.html

Not saying this is fool proof as their will always be times of under and over valuation but this seem to be a fairly solid link.

Have I messed up, am I wrong? I don't know but it seemed like a eureka moment after years of average wage etc.

Graham_Devon

Disposable income is seriously effected by the interest rate though, surely?

We've seen thousands of people free up hundreds of pounds each month due to lower mortgage payments for those on SVR's and Trackers.

So although I agree with your maths, I think the influences outside of these two numbers (house price vs disposable income) are far to great to confirm a solid link.

For instance, we as a nation have massive debt repayments each month, more than any other previous time in history, actual payment wise and percentage wise, which will be eating a lot of the disposable income today.

Really2

Graham_Devon wrote: »

Disposable income is seriously effected by the interest rate though, surely?

We've seen thousands of people free up hundreds of pounds each month due to lower mortgage payments for those on SVR's and Trackers.

So although I agree with your maths, I think the influences outside of these two numbers (house price vs disposable income) are far to great to confirm a solid link.

Have a stab though on the data, it could have just been the start date I picked but it is very interesting.

But you are right and it would reflect it if rates went up, disposable would go down (providing wage inflation does not increase) calculation would = lower house price.

lemonjelly

From a slightly different perspective

Your disposable income is going to be different to mine, and so on.

In addition, issues around inflation, fuel/petrol costs (;)) taxation etc will all have a big impact on "disposable income".

In addition, this doesn't take into effect the role of the black economy.

That said, I have consistently argued that disposable income levels are being squeezed, & will be further squeezed in the near future.

Therefore, if your maths is correct, & my theory is correct, then double dip here we come.

You heard it here first folks, Really2 predicts a double dip!;):D

angrypirate

Someone cant do maths.

£242930M up from £110884M is 119% increase, not a 219% increase (remember - if something doubles - ie increases by a factor 2 then thats a 100% increase, not a 200% increase).

That means house prices should be £110k.
242930 / 110884 * 50k = 109.5k

Coincidence that the false calc came out at 160k. Bring on the crash

Really2

lemonjelly wrote: »

You heard it here first folks, Really2 predicts a double dip!;):D

I think stagnation, you can cut back on spending to increase your disposable income.

I am not saying it is right, just that it is the closest thing I have seen as a match to house prices. Multiples never maid any sense when compared to prices.

But yes if this was correct any decrease in disposable (as per ONS data) should either show a drop in house prices or that house prices are overvalued IMHO.

Blacklight

Well, the numbers for Gross Disposable Income are fairly linear. So against the house price line it doesn't really point to anything more than x increases and so does y.

If you take the 'Adjustment for change in net equity of households in pension funds' (whatever that means) then the lines are oddly similar *shrug*

Really2

Malcolm. wrote: »

Shouldn't you be multiplying by 220% instead of adding it?

You can X 2.2 or Add 220% they are the same.

angrypirate

Really2 wrote: »

You can X 2.2 or Add 220% they are the same.

No they arent. You multiply by 2.2 or add 120%. If you add 220% then you multiply 3.2. EG
2 x 2.2 = 4.4
2 + 220% = 2 + 220/100 x 2 = 6.4

Really2

angrypirate wrote: »

No they arent. You multiply by 2.2 or add 120%. If you add 220% then you multiply 3.2. EG
2 x 2.2 = 4.4
2 + 220% = 2 + 220/100 x 2 = 6.4

It is increase by the % increase/decrease in disposable income.

So sorry, my mistake they are not the same but the calculation stands.

angrypirate

And the calculation gives a house price of 110k. Thats pretty consistent I think with a lot of Bears isnt it?