Wage vrs House Prices

nollag2006

kriss_boy wrote: »

How exactly is affordablility at a record high when one of my mates bought a flat in 2004 for 45K and another mate is now buying an identical flat post slump for 85K.

Glad you acknowledge that the slump is over

The reason is that BOE base rate stood at 4 - 4.75% during 2004 and is 0.5% today

Shame you didn't follow your friends lead and buy in 2004. You'd be quids in now

:rotfl:

kriss_boy

But theres very little evidence to suggest low interest rates are here to stay. Is there any mortgage packages out there that arent susceptible to huge hikes when interest rates do rise in the future?

kriss_boy

nollag2006 wrote: »

Glad you acknowledge that the slump is over

The reason is that BOE base rate stood at 4 - 4.75% during 2004 and is 0.5% today

Shame you didn't follow your friends lead and buy in 2004. You'd be quids in now

:rotfl:

Who said I didnt?

nearlynew

It now takes 2 people to afford the same as one person could.


That's some progress.

princeofpounds

But theres very little evidence to suggest low interest rates are here to stay. Is there any mortgage packages out there that arent susceptible to huge hikes when interest rates do rise in the future?

fixed rate mortgages are available for particular time periods like 2, 5, 10 yrs, but they have higher rates than variable ones because they aim to price interest rates appropriately across the whole period, not just the current 'spot' rates.

Malcolm.

princeofpounds wrote: »

But the main determinant of demand is simply the price and availability of finance, if you run the regressions.

Could you please post your regression analysis? It must be difficult to determine the demand line, let alone perform a regression for it. One only historically knows the point it intersects with supply. The sold prices.

Blacklight

kriss_boy wrote: »

Stats seem to suggest house prices exploded in the last 10 years.

But is there any logical reason as to why the trend of the prior 30 years wont be restored?

Personally I think culturally things changed in recent years when mod cons and home technology became a focus for a lot of peoples disposable income. Couple to that the birth of numerous home/property programmes. An greater emphasis was placed on furnishing a property in a particular way and staying in became the new going out.

But do you think today any logical reason remains as to why homes should be so expensive?

Personally I dont think the younger generations are prepared to devote such a high proportion of their salaries on a property.

No I don't think there's any reason why, in time, the ratio of earnings to borrowing will come down again. It's cyclical; boom and bust.

Prices will stagnate now just as they did after previous booms, leaving wages to rise and catch up a bit. They will become more affordable until people realise how cheap they have become and then they'll be another boom.

It took massive restriction on the supply of credit, some large banks going under, a global decline in GDP, a run on banks in the UK, unprecedented QE and low interest rates and hundreds of thousands of job losses for falls in the face value of property. Unlikely that's going to happen again any time soon (unless you believe those chaps in their bunkers eating cold beans with heads wrapped in kitchen foil chatting to each other on internet forums to make each other feel better).

chucky

nearlynew wrote: »

It now takes 2 people to afford the same as one person could.


That's some progress.

despite me agreeing you - what are the alternatives?

rent for the rest of your life?
try and buy at the bottom of housing cycle where you've got more chance to get it very wrong than right?
the list is endless - what should people do?

princeofpounds

Could you please post your regression analysis?

Well it isn't mine, but in terms of some relevant literature:

Pain & Westaway 1996

Meen 2001
Muellbauer and Murphy 1997 and
Cameron, Muellbauer and Murphy 2006
and the various papers referenced from those.

The econometrics are not straightforward, so determining a precise relationship is not easy (and likely impossible) but the general picture is evident.

Actually I should qualify - the availability and price of finance is a major driver once wage inflation is taken into account (which is the structural driver over the really long term, finance being more of a cyclical medium-term driver), but given that the question was about house price vs wage ratios I think my answer is still fair.

nearlynew

chucky wrote: »

despite me agreeing you - what are the alternatives?

Lower prices maybe?