This can't go on: house prices must drop or wages must rise.

John_V85

Not something I can say I've thought about in much depth, but is it really right to base a house price case on reversion to mean of average earnings? I would assume that the demand for houses has increased vs. the supply due to immigration, household dynamics (increase in single person households, etc.) and I'm sure for many other reasons. This would be particularly the case for cities, e.g. London.

If one assumes that is correct for a minute then the average earning multiple doesn't make sense as the "average" person will be less able to afford a property than they have in the past due to the available properties moving up the hypothetical wage scale. How much divergence from the mean this should account for I do not know, but assuming demand continues to outstrip supply over the longer term then one would always expect this multiple to increase. If they are balanced then it should be fairly constant and if supply exceeds demand then it should decline, all else being equal.

StevieJ

Graham_Devon wrote: »

Wage inflation beating general inflation, in order that people can spend even MORE of their income on debt.

I believe the term is "your avin a giraffe mate".

Well rates won't be going up unless, the main driver of general inflation is wage inflation.

Emy1501

Of course it cantt and the hope of the government I suspect is wage inflation will allow prices to become more affordable so that when rates rise a problem won't caused. Whether this happens or not is anyones guess.

I suspect the problem at the moment is trying to get wage inflation.

Cleaver

Doctor_Gloom wrote: »

Good article. More heavy falls in house prices, as the Halifax showed last week, are absolutely nailed-on.

THE_GHOULS_PARADISE wrote: »

Nothings "nailed on". The government wont let anything fall. House prices are too big to fail.

I imagine that somewhere in the country there is an enterprising and passionate middle-school teacher who, who the time allows, takes his class of 10 year olds away from the cirriculum and has class discussions on various issues. I had a teacher like this when I was little and felt that I learned a lot more from these little ten minute discussions than I did from the 'proper' stuff we were supposed to be studying. Anyway, if this enterprising teacher raises the topic of house prices and the economy with his group of 10 year olds I imagine that the responses he gets are of a similar calibre to the first two replies in this thread.

Silverbull

Cleaver when you are not insulting other posters what do you think then, earnings to up or house prices to fall?

HAMISH_MCTAVISH

Silverbull wrote: »

Cleaver when you are not insulting other posters what do you think then, earnings to up or house prices to fall?

Or option 3.

Neither.

Because it isn't a speculative bubble at all but rather a rise in prices reflective of the underlying supply/demand imbalance.

According to Halifax, the long term average for house prices is 4 times male mean earnings. The current average is around 4.8 times male mean earnings. Which is a small enough variance to be explained by the changes in demographics and shortage of housing.

By contrast, the Japanese property bubble saw the Chairman of Sony unable to buy a house, as property prices reached a staggering $1,000,000 per square metre in some areas. Even after 20 years and prices falling by 80%, Tokyo housing is STILL more expensive than London.

In some parts of China, house prices are 88 times local average income. And no, that's not a typo, it's eighty eight times average income.

Those are clearly bubbles. But 4.8 times versus 4 times income? Not so much.

JonnyBravo

Either, or.
Black or white.

Of course we can have both. We probably will have both.

Sorry that doesn't satisfy either side fully.

Cleaver

Silverbull wrote: »

Cleaver when you are not insulting other posters what do you think then, earnings to up or house prices to fall?

Well, insulting posters does take up a lot of my time. Mind you, Dr Gloom and those Ghouls people aren't real posters. There's been these types of people since I joined this site: they're like robots with just one line, very positive or negative statements. Nollag, Downey, Dr Gloom, Ghoul... very odd.

Anywho, I have no idea about house prices. Honestly no clue whatsoever, which is why people on here call me a fence sitter, but I just don't get how you're supposed to call a market that seems (to me) so illogical. After seeing the rises over the past year or so I'm not convinced that the housing market shows any real logical links to anything economically fundamental. It just seems to behave as it's own accord.

From a very simplistic point of view I just can't see how house prices can rise. I read Hamish's posts with interest and he seems a knowledable and learned chap, but I just can't agree with him. I don't see how people can afford houses at the moment, or the next five years, to keep prices rising. I certainly don't think house prices will crash (as I've said many times before that people love owning their houses too much in this country) but I do think we'll see house price falls of maybe 10% over the next year or so, and I still think you'll be able to pick up a house in 2017 at close to what that house (or similar) was selling for at the peak in 2007. Which I guess is a pretty pessimistic and bearish position to take on housing compared to the average person on the street.

But I wouldn't put any weight behind what I say, I'm completely clueless at predicting the housing market.

Graham_Devon

HAMISH_MCTAVISH wrote: »

According to Halifax, the long term average for house prices is 4 times male mean earnings. The current average is around 4.8 times male mean earnings. Which is a small enough variance to be explained by the changes in demographics and shortage of housing.

What about the median average household income.

It's more relative. Doesn't give as good results though.

Just a smidgen over £30,000.
http://www.statistics.gov.uk/cci/nugget.asp?id=334

I make that 5.4x household income. It's worth remembering how many times we have been told on this board people don't buy on one wage, but two. Well, this is household income, so will include 2 wages.

It's strange. House affordability multiples you measure on one mean average male income (best possible outcome when using affordability multiples). Yet for anything else, you measure affordability on two incomes (best possible affordability outcome when talking about prices and rising prices).

HAMISH_MCTAVISH

Graham_Devon wrote: »

What about the median average household income.

It's more relative. Doesn't give as good results though.

What, the median average houshold income that includes all the pensioners and lifetime unemployed people.

The ones that don't buy houses.....

Gee, do you think that may be why Halifax use the Full time employed male income?

Employment being a bit of a prerequisite for actually buying a house, in most cases?

That and the fact they have many decades of history using the same measure, so it's a consistent data series.