House prices, according to Mum and Dad

EdInvestor

Telegraph

I just thought you youngsters ought to be shown this graphic, so you would understand why Mum and Dad sometimes find it hard to understand what all the whinging is about.

sanfrancisco

link??? link?

RHemmings

sanfrancisco wrote:

link??? link?

Houses considerably more affordable now than in much of the past? What statistic is being plotted here and how is it calculated. I find it very difficult to believe that houses are "fair" in terms of affordability now. To be honest, this graph looks like BS to me.

EdInvestor

Here's the explanation of the basis of this new "affordability index".

The major difference is that it includes interest rates as a factor.Most people would find it pretty odd if they were excluded, surely?

I can tell you, Mum and Dad would think it was odd (they had to pay as much as 15%) :eek:

pawpurrs

Good Article, thanks. It all relies on IR not rising too much though, doesnt it, a lot of people are going to be bugered if IR rise to half of 15% as the lending multiples are so much higher now.

EdInvestor

I think the idea is that there has been a more or less permanent global switch from high inflation/ high interest rates back to low inflation/ low interest rates, (which were the historical norm for hundreds of years).

UK rates have been bouncing around in the 3-6% range for around seven years now.

wibble68_2

EdInvestor wrote:

I think the idea is that there has been a more or less permanent global switch from high inflation/ high interest rates back to low inflation/ low interest rates, (which were the historical norm for hundreds of years).

UK rates have been bouncing around in the 3-6% range for around seven years now.

Are you saying that interest rates will never go to 7% or above?

whambamboo

EdInvestor wrote:

I think the idea is that there has been a more or less permanent global switch from high inflation/ high interest rates back to low inflation/ low interest rates, (which were the historical norm for hundreds of years).

UK rates have been bouncing around in the 3-6% range for around seven years now.

How can less than 10 years be classed as semi-permanent? It's like saying 'Tesco sales have grown for x years, therefore they will grow forever'.

If we really do have an era of 'permanent' (ha-ha) low interest rates, then no, our parents in the 1970s do not wonder what we are complaining about. They could buy a 3-bed terrace in London for £6000, and yes there'd be a year or so of pain with the payments, but they'd be confident that the debt would be practically worthless due to massive inflation in a few short years.

Now, inflation is low, and payments on that house, now worth £500,000 or more will be thousands per month, which will continue to be a large amount of money for many years to come, giving them no chance to slipup, lose their job, have a family or do anything else, or face the loss of their house.

No, of course the people buying in the 1970s don't know what we're complaining about - we've never had it so good! They'd luuuuurve to be paying £200,000 for a studio flat in Feltham, rather than a few thousand pounds of rapidly devaluing debt. It's a bargain. Buy buy buy! They'll be worth £400k in 6 years! Everyone wants a piece of trendy Feltham, handy for the young offender's institute and convenient for Heathrow.

RHemmings

This all still seems very suspicious. We hear that the proportion of peoples' income that they have to spend on mortgage payments has become very high.

http://money.guardian.co.uk/property/mortgages/story/0,,1886576,00.html
http://money.scotsman.com/scotsman/articles/articledisplay.jsp?article_id=3829593&section=Mortgages&prependForce=SM_XML_

There are several questions not answered by the link above.

First, exactly how is the combined affordability figure calculated? I don't see an exact method in the reference.

Second, is this figure for recent buyers, for the average house bought now, or is it averaged across current mortgages. If there's any averaging, then changes in the figure will lag.

Third, is this an "affordability" figure calculated only for initial payments? I posted some figures before that showed that compared to a high interest rate lower house price situation, a lower interest rate higher house price situation led to the houses being much more expensive, even if initial payments are the same. In short, the debt is not quickly eroded.

Fourth, the article presumes that affordability is what would trigger a house price crash. What's then happening in various regions of the USA where house prices are going down, even though "affordability" is better than here?

whambamboo

EdInvestor wrote:

Telegraph

I just thought you youngsters ought to be shown this graphic, so you would understand why Mum and Dad sometimes find it hard to understand what all the whinging is about.

So uh, prices have gone up 45% since end of 2002, wages up about 15%, council tax up 30%, fuel bills up 70%, interest up by 19% (from 4% to 4.75%), and apparently affordability is only down by 17%?????

That's crazy. You're paying more interest, on more money, with higher fixed costs (fuel bills, interest), and barely higher wages, and things are supposed to be only 17% less affordable.

The fact is even supposedly wealthy doctors are now classed as 'priority', because they can't even afford a horrid box in Feltham, so rather than addressing high prices, the government subsidises a few public sector workers to pay the outrageous prices.

Isn't that a sign that something's very wrong that houses that were not so along ago intended for coal miners or crofters or even horses are now unaffordable to even middle class police officers and teachers.

Never mind, ignore the warnings.

Buy now, last chance to buy a house, if you don't buy now, you'll be faced with having to live in a tent on the street. Quick, quick, buy a 1/3 share of a flat in Feltham for £100k. Don't forget, last chance to buy now.

EdInvestor

This index is also worth a look.It's "smoothed" version of the Nationwide and Halifax month on month figures for the last few years, done by an economist who posts at the Fool.It seems to suggest the market bottomed out in September a year ago and now has resumed rising.The economist reckons double digit rises are a possibity for this year, as does the Telegraph writer.

They could buy a 3-bed terrace in London for £6000, and yes there'd be a year or so of pain with the payments, but they'd be confident that the debt would be practically worthless due to massive inflation in a few short years.

It was not the debt itself that made house prices unaffordable in those days - you hardly paid back any of the debt for most of the mortgage term. It was the interest on the debt that made home ownership so expensive.

These days it's quite possible for people to pay off their mortgage in less than 10 years if they try hard.There is even a forum on this site to encourage posters to do so. That would have been utterly impossible in those days.