The UK Housing Bubble yet to Burst: FT Video

twadge_face

IveSeenTheLight wrote: »

Very true.
This can also be seen here where the lowest ratio was 3.09.
Incidently, the 27 year average is 4.02 with the current ratio being 4.35

That is very interesting. I've pasted the ratio since the peak (2007 Q3 @ 5.86) and you can see how it went down quite rapidly to 2009 Q1:

07Q3 5.86
07Q4 5.73
08Q1 5.60
08Q2 5.26
08Q3 4.92
08Q4 4.61
09Q1 4.35

Three things I note:
1. The sheer speed of decline. Like a stone!
2. 6 consecutive quarters of drops. No sign of going back up...
3. ...BUT where is the data Q2, Q3, Q4 2009, and Q1 2010 ???

Oh, sorry, a fourth thing: surely to get "back" to average, after 27 quarters of above average House Price Earnings Ratio, we'd have to see the ratio undershoot for a wee while, right?

GDB2222

IveSeenTheLight wrote: »

Very true.
This can also be seen here where the lowest ratio was 3.09.
Incidently, the 27 year average is 4.02 with the current ratio being 4.35

Your 4.35 ratio figure is for Jan 2009. The current figure is 4.71. As you say, the 27 year average is 4.02. So, people buying now are paying a larger multiple of salary than previous generations did (except for a year at the peak in 1989 and for the whole of the period since 2004).

The ratio is bound to dip below the long-term average at some point, or that won't be the average any longer. So, people buying now risk a fall back to the average, followed by a fall below the average for a while. You can calculate averages over different periods, but if you leave out the period since 2004, the average ratio is 3.67. That's over a period of 20 years.

It's distinctly worrying that it's necessary to use new paradigms to justify current house price levels, eg 'forget about price, look at affordability'. That's the sort of thing that happens in bubbles. Of course, one day there really will be a genuine shift in attitudes and that particular bubble won't turn out to be a bubble after all. One example of that is the change in investment institutions investing much more heavily in equities during the 1950's and shifting out of fixed interest securities.

Really2

GDB2222 wrote: »

It's distinctly worrying that it's necessary to use new paradigms to justify current house price levels, eg 'forget about price, look at affordability'. That's the sort of thing that happens in bubbles.

I agree in part but also I did ask is 3.5X (or 3.7X) a males wage really current giving the shift in female employment in the last 30-40 years?
To me it looks a slightly outdated way of judging where house prices should be unless we go back to the 60's and wifey no longer having a job to raise a brood. (can't see many single or women without children voting for that though)

So in reality looking at household income compared to house prices historicaly would make more sense as it would allow for the extra funds coming in over the last 30-40 years.
Then it will tell you how over priced they are. I dare say in real terms the average household income is a lot higher than it was 30 years ago.

StevieJ

GDB2222 wrote: »

Your 4.35 ratio figure is for Jan 2009. The current figure is 4.71. As you say, the 27 year average is 4.02. So, people buying now are paying a larger multiple of salary than previous generations did (except for a year at the peak in 1989 and for the whole of the period since 2004).
.

And don't forget mortgage rates were over 15% at that time as well :eek:

GDB2222

Really2 wrote: »

I agree in part but also I did ask is 3.5X (or 3.7X) a males wage really current giving the shift in female employment in the last 30-40 years?
To me it looks a slightly outdated way of judging where house prices should be unless we go back to the 60's and wifey no longer having a job to raise a brood. (can't see many single or women without children voting for that though)

That's a good point. Mind you, these stats from the Halifax go back 27 years, and the average is only 13 years ago. So, much of a trend that started 30-40 years ago will be included in the average.

Birth rates have picked up a fair bit in the last five years or so. It looks like people have been delaying starting their families rather than deciding not to have children at all. Even if both partners work after the children are born, there's still the cost of childcare that will eat into household income.

Really2

GDB2222 wrote: »

It looks like people have been delaying starting their families rather than deciding not to have children at all. Even if both partners work after the children are born, there's still the cost of childcare that will eat into household income.

True but it gets cheaper after 3 years.
But in reality you cut your cloth to fit.
You have to rent a family home (well you should) when you have children so you could argue that in reality there is no major difference between renting or owning when children get involved as the costs are not far off the same.

Based on demand, IR rates and disposable income compared to the past I do not really think house prices are as high as some believe.
I really can't see 3.7X a male wage ever coming back as a long term average TBH, never mind 3.5X the average wage (yes some believe it should be 3.5X the average wage.)
Not unless something really drastic happened and the credit crunch was fairly drastic.

Sorry for the edit's.:)

IveSeenTheLight

!!!!!!_face wrote: »

Oh, sorry, a fourth thing: surely to get "back" to average, after 27 quarters of above average House Price Earnings Ratio, we'd have to see the ratio undershoot for a wee while, right?

that's the thing about averages, it balances out the above the average with the below the average :roll eyes:

Not sure why Halifax have not updated for the last few quarters.
I would expect that to have risen given house prices hae risen to be fair.

IveSeenTheLight

GDB2222 wrote: »

Your 4.35 ratio figure is for Jan 2009. The current figure is 4.71.

Thanks, it's not my 4.35 ratio figure, it was the halifax's.
Not sure why Halifax have not updated for the last few quarters.
I would have expected to see this rise as house prices have risen

GDB2222 wrote: »

The ratio is bound to dip below the long-term average at some point, or that won't be the average any longer. So, people buying now risk a fall back to the average, followed by a fall below the average for a while. You can calculate averages over different periods, but if you leave out the period since 2004, the average ratio is 3.67. That's over a period of 20 years.

Not so sure that it is "bound" to dip below the long term average.
as you indicate, it simply means the long term average increases over time.
Because it's increasing, it's just another indicator that house prices have risen and that you need to be wealthier to be able to afford.
Again it links back to the supply / demand ratio and the fact that people are competing for the available supply.

GDB2222 wrote: »

It's distinctly worrying that it's necessary to use new paradigms to justify current house price levels, eg 'forget about price, look at affordability'. That's the sort of thing that happens in bubbles. Of course, one day there really will be a genuine shift in attitudes and that particular bubble won't turn out to be a bubble after all. One example of that is the change in investment institutions investing much more heavily in equities during the 1950's and shifting out of fixed interest securities.

Very interesting and important point here.
I was speaking to a colleague only the other day in that he lives in a 3 bedroomed house and is about to remortgage.
He's loking at some point in time to upgrade to a 4 bed detached, yet he has no children as yet.
It's a fact that the culture has changed from previous year in that people want more from their properties and again just feeds the demand.

Go back 30 to 40 years and ask yourself if the average person wanted to have a 4 bed house without having children. It seems that the "culture" nowadays is to have the best you can get, regardless if you really need it or not.

Really2

IveSeenTheLight wrote: »

Go back 30 to 40 years and ask yourself if the average person wanted to have a 4 bed house without having children. It seems that the "culture" nowadays is to have the best you can get, regardless if you really need it or not.

I think that is a good point but my slant is that people do it to be there before every one else. I think I may be an example:o I have a house a lot bigger than we need simply because I do not want to be buying it in 10-15 years time because I believe it will cost me more as other my age will then be looking. Also the sooner I buy it the sooner I can be mortgage free.

Perhaps as a generation we prepare for the future more than previous ones?

I suppose the risk is the more you spend the greater your potential loss/ gain is but it was not about that it was more finding the house that I do no need to move out of for the next 20 years and getting mortgage free.

Then possibly looking to downsize when it is just me and the mrs again.

ukcarper

!!!!!!_face wrote: »

That is very interesting. I've pasted the ratio since the peak (2007 Q3 @ 5.86) and you can see how it went down quite rapidly to 2009 Q1:


Three things I note:
1. The sheer speed of decline. Like a stone!
2. 6 consecutive quarters of drops. No sign of going back up...
3. ...BUT where is the data Q2, Q3, Q4 2009, and Q1 2010 ???

Oh, sorry, a fourth thing: surely to get "back" to average, after 27 quarters of above average House Price Earnings Ratio, we'd have to see the ratio undershoot for a wee while, right?

Surely the average is the average of what has already happened and the average including the next 10 years could and probably will be different.