Age of home ownership coming to an end...

GDB2222

HAMISH_MCTAVISH wrote: »

... average property prices of just 0.75 times income more than the long term average. (Halifax historical series, male, mean, 4,75 today vs 4.0 long term average)

Taking your figures, 4.75 is 20% above the long term average. If prices turn down and go just 10% below the long term average, that's a 30% drop. If you take the view that the long-term average is 3.5, rather than 4, the scope for a drop in prices is really quite substantial.

HAMISH_MCTAVISH

GDB2222 wrote: »

Taking your figures, 4.75 is 20% above the long term average.

Actually, it's closer to 15%.

If prices turn down and go just 10% below the long term average, that's a 30% drop.

A 30% drop would be historically unprecedented. In the 1990's crash, prices fell just 13% from peak to trough.

And if it didn't happen in the worst financial crisis in decades, with the withdrawal of 70% of mortgage funding, it's extremely unlikely to happen now.

If you take the view that the long-term average is 3.5, rather than 4,

If you took that view you'd be wrong. The long term average of the Halifax series, the one I quoted, is 4.

the scope for a drop in prices is really quite substantial.

Only in your dreams.....:D

Graham_Devon

HAMISH_MCTAVISH wrote: »

A 30% drop would be historically unprecedented.

So is 0.5% base rates.

Doesn't mean it didn't happen.

the_flying_pig

HAMISH_MCTAVISH wrote: »

Actually, it's closer to 15%.



A 30% drop would be historically unprecedented. In the 1990's crash, prices fell just 13% from peak to trough.

And if it didn't happen in the worst financial crisis in decades, with the withdrawal of 70% of mortgage funding, it's extremely unlikely to happen now.



If you took that view you'd be wrong. The long term average of the Halifax series, the one I quoted, is 4.



Only in your dreams.....:D

i must say hamish your post #141 was one of your better, more balanced, efforts.

it's let down a little, obviously, by your repeated use of "supply/demand" as a shorthand for what you really mean, namely "supply/demand and I put it to you that neither a speculative motive for holding property nor irresponsible lending have played nearly as big a part in inflating demand as some of you 'bears' on here make out". the bit in purple is so central to your, ahem, Grand Theory that wittering about "supply/demand" without it makes you look extremely foolish. for the zillionth time, everyone with half a brain knows that the price of almost everything is almost always determined by "supply/demand" in some sense. but, just as keynes spelled out the nature of the speculative motive for holding money back in the day, the demand for pwoperdee has its own, extremely volatile, speculative component... and, it goes without saying, the supply of mortgage credit is an absolutely key component of demand. you acknowledge this yourself frequently when drivelling about the supposedly pernicious impact of "mortgage rationing".

but one other point is around your claim that, "The long term average of the Halifax series... is 4". i can't agree with this. IMO you'd need at least a hundred years' worth of data to produce anything even close to representing a "long term" figure. Halifax only spans two booms and, depending on your opinion, one and a half or two busts. the 20th century average [17 years' worth of data starting 1983] is 3.64. the 21st century average [10 years' worth of data] is 4.63. the full dataset's average is 4.0. these differences are obviously huge, meaning essentially that there isn't such a thing as a "long run" figure - it must be the case that either the dataset is too small or the figure genuinely has increased in a meaningful way over time.

IMO [coloured, no doubt, by my personal prejudices] 3.25, give or take 0.25, is an interesting figure since, uniquely for the very short-run halifax dataset, this seems to be a level that can be sustained as some kind of equilibrium for a decent amount of time [namely the decade between 1992 and 2001].

looking at other candidate figures:

The longest that a ratio of 4.0 +/- 0.25 has been sustained for is about 20 months in 1986/88.

The longest that a ratio of 3.0 +/- 0.25 has been sustained for is about 5 years in the mid/late nineties.

The longest that a ratio of 4.5 +/- 0.25 has been sustained for is about two years in the period up to, well, now [based on a very low transactions level].

IveSeenTheLight

Graham_Devon wrote: »

To have a crash, you have to have had excess beforehand. Otherwise there would be no crash.

No one can say Hamish does not cheer on this excess, it's clear he does, even to himself, he's admitted it, as Hamish is like that, does admit when he is wrong, and admit's his true stance.

Therefore, can we also say Hamish is cheering on a crash? It's always been an inevitable consequence of excess.

Hasn't Hamish also provided the solution to all of this i.e. by building and supplying more properties?

IveSeenTheLight

Exocet wrote: »

But that would have been the case when they were rising in value. Unless, at the same time as the wives went off sex and started purchasing Hello Kitty stuff then the houses started to built in a more slipshod fashion.

It's interesting how the negative Japan arguments only apply after the crash. Maybe that is symptomatic of bubbles generally, and you will be explaining the UK crash in a similar fashion when and if it happens.

Has the UK developed a fault line similar to that enountered in Japan?

What's your input into the expected lifespand of a Japanese property compared to a UK property.

GDB2222

HAMISH_MCTAVISH wrote: »

Actually, it's closer to 15%.


If you took that view you'd be wrong. The long term average of the Halifax series, the one I quoted, is 4.

No it isn't 15%. Since when has 18.75% been closer to 15% than 20%?

The average of 4 includes the latest period which is arguably a bubble - well, that's what we have been arguing about. However, accepting your figure of 4, if there's scope to be 18.75% above average and that's just a fluctuation, there's also scope for a fluctuation of 18.75% below. Either that, or the average isn't the average at all. That gives a 30%+ drop from where we are, which you have just said can't happen.

Really, your only logical position is that there has been a sea-change in house prices, and we have established a new paradigm where a ratio of 4+ is the norm. In fact, you really need at least an average of over 4.5 to be able to say that a 10% fall is unlikely**. That is possible, of course, but I think that whenever you mention multipliers you weaken your case.

** a fall from 4.75 to 4.5 is 5% and a further 5% fall the other side of the average would have to be within the foreseeable range of outcomes.

IveSeenTheLight

GDB2222 wrote: »

The average of 4 includes the latest period which is arguably a bubble - well, that's what we have been arguing about. However, accepting your figure of 4,

There seems to be a bit of discussion over the affordability ratio, however would you not consider the factors that make up the affordability ratio.

Certainly the average house used to be bought on a single wage, indeed many homes were previously a single income family.

Over the years there have been a shift to second income as part time and then dual incomes.

The next shift seems to be to shared ownership.

Throughout these changes, has the calculation changed or not i.e. is it still based on a single persons income.

Are we seeing the ratio increase, but as a result of dual income / shared ownership that being split among a greater number.

I've not looked into it, but certainly it would seem plausable that this ratio is not correct for today when comparing against previous household incomes.

GDB2222

I agree. The query I have is how much the second income can be when you have a couple of kids under foot? Also, this two income thing is not that new, you know. I started work in 1974, and it was quite the thing then to want the lenders to take the second income into account, but usually it was done on 3x main or 3 x main +1 x second income. What's really changed is the willingness of lenders to lend higher and higher multiples. What happens if they start lending lower and lower ones?

I've also worked through periods of very high interest rates coupled with high inflation. A 10% interest rate is well within the bounds of what has happened in the past. That would make a 4.5 times salary mortgage very hard to afford, especially as that sort of period tends to come at times when work is hard to get. To be fair I should add the stock market's yield curves are pointing to benign interest rates for the next few years.

the_flying_pig

IveSeenTheLight wrote: »

There seems to be a bit of discussion over the affordability ratio, however would you not consider the factors that make up the affordability ratio.

Certainly the average house used to be bought on a single wage, indeed many homes were previously a single income family.

Over the years there have been a shift to second income as part time and then dual incomes.

The next shift seems to be to shared ownership.

Throughout these changes, has the calculation changed or not i.e. is it still based on a single persons income.

Are we seeing the ratio increase, but as a result of dual income / shared ownership that being split among a greater number.

I've not looked into it, but certainly it would seem plausable that this ratio is not correct for today when comparing against previous household incomes.

Dual incomes is a red herring IMO. There has been a shift to dual incomes over the years but only very slowly. The number of extra women in the workforce since the decade long period of the income ratio being 3.0-3.5 [1992-2001] is fairly trivial - a couple of hundred thousand or something like that [it's readily available on the statistics.gov.uk], far fewer than the number of extra houses built in that time. In 1992 to 2001 you had pretty much the same number of dual income households you do now, what was different then was that lending tended to reflect single incomes. And, as we know, even with relatively prudent rules such as this, high interest rates were enough to create a tidal wave of reposessions in the 90s.

Shared ownership, well, you could query whether that's a response to high prices or simply a cause of high prices. A bit like 100-year mortgages in Japan.