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Why house prices must fall by 28 per cent
tommy75
Posts: 583 Forumite
Coming thick and fast now.. Something in the air?
http://blogs.telegraph.co.uk/finance/ianmcowie/100006757/why-house-prices-must-fall-by-28-per-cent/
A trivial increase in house prices this month has prompted speculation that the market may be stalling but prices would have to fall by 28 per cent from their current level to become affordable for first-time buyers.
Nationwide, Britain’s biggest building society, calculates that average house prices edged up by 0.1 per cent in June to stand about 3 per cent higher than they did at the start of the year. While the headline figure attracts most attention, Nationwide also measures affordability by measuring house prices as a multiple of gross or pre-tax earnings.
On that basis, housing remains far more expensive than the long term average. For example, Nationwide’s first-time buyers’ price/earnings ratio increased from 4.4 in the first quarter of this year to 4.6 in the second quarter.
In other words, the average first-time buyer now needs 4.4 years’ income before tax to buy the average first-time buyer’s home. That’s a tall order. To see just how steep it is, compare that figure with Nationwide’s average price/earnings ratio over more than the last quarter of a century of just 3.3.
So, by this measure of housing affordability, prices would have to fall by 28 per cent from the their current level to reach the long term average since 1983 for first-time buyers. While homeowners may be dismayed at the prospect of a major asset losing more than a quarter of its value, younger people might more reasonably regard such a reversion to the mean as a chance for them to escape from rented accommodation – and a good reason not to rush to buy now.
Any or all of three main factors could precipitate such a large change in house prices. Higher interest rates – now regarded as a question of ‘when’, rather than ‘if’; higher unemployment – ditto; and reduced mortgage availability; already a fact.
With inflation running well above Bank of England targets, however it is measured, and the coalition government determined to cut spending to reduce deficits, the only real question is whether higher interest rates or rising unemployment will be first to burst the housing bubble.
Housing analyst John Wriglesworth of the Wriglesworth Consultancy said: “First-time buyers who decide to proceed at present face a double difficulty of having to find higher income multiples than have been regarded as reasonably affordable in the past and being required to produce higher deposits if they want to fulfill their housing aspirations.”
As pointed out in this space before, it might be wiser for prospective first-time buyers to wait before they buy and save a bigger deposit while prices fall.
http://blogs.telegraph.co.uk/finance/ianmcowie/100006757/why-house-prices-must-fall-by-28-per-cent/
A trivial increase in house prices this month has prompted speculation that the market may be stalling but prices would have to fall by 28 per cent from their current level to become affordable for first-time buyers.
Nationwide, Britain’s biggest building society, calculates that average house prices edged up by 0.1 per cent in June to stand about 3 per cent higher than they did at the start of the year. While the headline figure attracts most attention, Nationwide also measures affordability by measuring house prices as a multiple of gross or pre-tax earnings.
On that basis, housing remains far more expensive than the long term average. For example, Nationwide’s first-time buyers’ price/earnings ratio increased from 4.4 in the first quarter of this year to 4.6 in the second quarter.
In other words, the average first-time buyer now needs 4.4 years’ income before tax to buy the average first-time buyer’s home. That’s a tall order. To see just how steep it is, compare that figure with Nationwide’s average price/earnings ratio over more than the last quarter of a century of just 3.3.
So, by this measure of housing affordability, prices would have to fall by 28 per cent from the their current level to reach the long term average since 1983 for first-time buyers. While homeowners may be dismayed at the prospect of a major asset losing more than a quarter of its value, younger people might more reasonably regard such a reversion to the mean as a chance for them to escape from rented accommodation – and a good reason not to rush to buy now.
Any or all of three main factors could precipitate such a large change in house prices. Higher interest rates – now regarded as a question of ‘when’, rather than ‘if’; higher unemployment – ditto; and reduced mortgage availability; already a fact.
With inflation running well above Bank of England targets, however it is measured, and the coalition government determined to cut spending to reduce deficits, the only real question is whether higher interest rates or rising unemployment will be first to burst the housing bubble.
Housing analyst John Wriglesworth of the Wriglesworth Consultancy said: “First-time buyers who decide to proceed at present face a double difficulty of having to find higher income multiples than have been regarded as reasonably affordable in the past and being required to produce higher deposits if they want to fulfill their housing aspirations.”
As pointed out in this space before, it might be wiser for prospective first-time buyers to wait before they buy and save a bigger deposit while prices fall.
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Comments
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Only thing is, havent they been saying that for about 3 years now?0
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it's a poor article because it's trying to take average affordability across the UK which is impossible as there are areas that earn much more than the national average so it distorts this average.Only thing is, havent they been saying that for about 3 years now?
here's the source of the data by region
http://www.nationwide.co.uk/hpi/downloads/FTB_HPER.xls0 -
Realistically, we see there is a change from historical comparisons.
There was even a report saying that due to the lack of supply, there is a likely increase in the number of households that are likely to share.
Shared housing seems to be a way of supporting house prices.
I personally don't agree with it, but until the supply is sorted out, what are the alternatives:wall:
What we've got here is....... failure to communicate.
Some men you just can't reach.
:wall:0 -
28% isn't really "all that much" is it.
£100k becomes £72k
£200k becomes £144k
£300k becomes .... my house
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it's a poor article because it's trying to take average affordability across the UK which is impossible as there are areas that earn much more than the national average so it distorts this average.
here's the source of the data by region
http://www.nationwide.co.uk/hpi/downloads/FTB_HPER.xls
What has price to earnings got to do with affordability, I thought mortgage costs/net income was more relevant? i.e what % of monthly income is used to service the mortgage.'Just think for a moment what a prospect that is. A single market without barriers visible or invisible giving you direct and unhindered access to the purchasing power of over 300 million of the worlds wealthiest and most prosperous people' Margaret Thatcher0 -
Aren't we meant to be into mega-serious peak selling period by this time of year, with sealed bids and other associated lunacies?
If it's like this now - with quite a few nervous-sounding articles in the offing - what's gonna happen when the nights start to draw in?
Oh, hang on, the nights are already starting to draw in...
And the spring bounce has been trounced.Long live the faces of t'wunty.0 -
you tried that one last year but you got... wait for it, wait for it, wait for it...!!!!!!_face wrote: »Aren't we meant to be into mega-serious peak selling period by this time of year, with sealed bids and other associated lunacies?
If it's like this now - with quite a few nervous-sounding articles in the offing - what's gonna happen when the nights start to draw in?
Oh, hang on, the nights are already starting to draw in...
And the spring bounce has been trounced.
a double spring bounce... :eek:
predicting price falls is a fools game...0 -
!!!!!!_face wrote: »Aren't we meant to be into mega-serious peak selling period by this time of year, with sealed bids and other associated lunacies?
If it's like this now - with quite a few nervous-sounding articles in the offing - what's gonna happen when the nights start to draw in?
Oh, hang on, the nights are already starting to draw in...
And the spring bounce has been trounced.
Then again where was the promised crash last time the nights drew in
'Just think for a moment what a prospect that is. A single market without barriers visible or invisible giving you direct and unhindered access to the purchasing power of over 300 million of the worlds wealthiest and most prosperous people' Margaret Thatcher0 -
Cant picture a day were a modern government will let house prices fall so much. Massive impact on 75%+ mortgages and negative equity. More likely to see wages trying to meet house prices but dont think that's happening soon either!0
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