You aint seen nothing yet: Why house prices could fall another 20%

pqrdef

Graham_Devon wrote: »

Although the house price to earnings ratio is currently above its long-run average, it is possible that the equilibrium level of the house price to earnings ratio is higher than the long-run average level would suggest.

So what would tend to raise the equilibrium? High LtVs, obviously. Cheap money. And buyer confidence in the future on several fronts - increasing real earnings, increasing house prices, stable interest rates.

We've got the cheap money. But none of the other things.

andykn

pqrdef wrote: »

So what would tend to raise the equilibrium? High LtVs, obviously. Cheap money. And buyer confidence in the future on several fronts - increasing real earnings, increasing house prices, stable interest rates.

We've got the cheap money. But none of the other things.

It's not an equilibrium. it's a long term rising trend:

http://www.housepricecrash.co.uk/graphs-ftb-average-house-price-to-earnings-ratio.php

http://www.housepricecrash.co.uk/indices-nationwide-national-inflation.php

auctiondanny

Why on earth would property increase in price at present ? Lenders are making it impossible for most who want to get on the ladder,take that step,estate agents still have their heads in La La Land,trying to keep prices (and their cut) at unrealistic levels !
With the current bad debt situation taking hold and hitting reality now,job losses,trading figures, export and import being hit,government cuts being implemented,and the Vat increase to contend with.....Why should the housing market move any other way but South ?
The fact that a house may have cost £200,000 12 months ago,doesn't mean that it has to be worth that in the future-does it !
It's only worth what someone will pay for it,and I for one will not be lining the pocket of someone who HAS to sell at a certain price to cover their debts.This is more the reality of it,the trend of living the high life off equity ( or paper profits in most cases).
When it's good it's great,but as soon as the market turns / or turned as it has done,I wonder how many people got caught in that situation ?
And this is where IMO the market is now.People in a position where they have to get at least what they paid for the property and substantially more,just to come out evens.Times are turning,sit tight those genuine buyers who are wanting a home-not a means to live the high life.The bargains will come,and as long as you can put the required deposit down,you should shop around and drive them prices down,down,down !
Don't let the estate agents give you any BS about what this and that are worth- WHO ARE THEY ???????
As for those that are on low rates at present,as mentioned,try and fix them for at least five years,as you don't want to get caught out when rates do eventually rise.

nicko33

andykn wrote: »

It's not an equilibrium. it's a long term rising trend:

Or neither.

ukcarper

andykn wrote: »

I'm taking a risk here as I got banned from HPC for pointing this out too often.

Traditionally, "average" earnings were mean male full time. To maintain comparisons with historical data, this appears to be still used.

The Office Of National Statistics still publish this info, but they promote median earnings as being more representative than mean. This is the salary point that 50% of people earn more than and 50% less then. Very roughly, median male and female full time earnings are around 25k and mean male and female full time earnings are just below 30k.

That does seem to make sense because traditionally that is what mortgages would have been based on.

des_cartes

andykn wrote: »

I'm taking a risk here as I got banned from HPC for pointing this out too often.

Traditionally, "average" earnings were mean male full time. To maintain comparisons with historical data, this appears to be still used.

The Office Of National Statistics still publish this info, but they promote median earnings as being more representative than mean. This is the salary point that 50% of people earn more than and 50% less then. Very roughly, median male and female full time earnings are around 25k and mean male and female full time earnings are just below 30k.

Historically house price affordability based upon 'average' wages rather than 'median' wages may be true however I suspect the variance between average and median is far greater today than it would have been in the past. It is well known that the multiples of the highest paid few percent (celebrities/footballers/bankers/ceo's) compared to the rest of the population have been increasing rapidly over recent years. You would not need many of these people to be included in the average wage calculations to skew them away from anything resembling reality for the vast majority (of potential house purchasors). The reality of the situation now is that a smaller and smaller percentage of the population can afford to buy a house at current levels because fewer and fewr people meet the skewed 'affordability' criteria of 4-5x average wages, for most people,average house prices are 6-7 times their wages. Unless wages for the majority rise substantially or house prices fall substantially or there is a return to loose lending then the housing market will be going nowhere.

Really2

des_cartes wrote: »

(celebrities/footballers/bankers/ceo's) compared to the rest of the population have been increasing rapidly over recent years. You would not need many of these people to be included in the average wage calculations to skew them away from anything resembling reality for the vast majority (of potential house purchasors).

Do you really think they make that much difference to 30M workers average wage?

It would be the rise of middle class jobs which made a difference not footballers and celebrities as a percentage of workers they are a tiny fraction.
1-3 are in a management role I believe.

Graham_Devon

Really2 wrote: »

Do you really think they make that much difference to 30M workers average wage?

It would be the rise of middle class jobs which made a difference not footballers and celebrities as a percentage of workers they are a tiny fraction.
1-3 are in a management role I believe.

Ok. Quick scenario.

99% of the population earn £25,000 a year.

1% of the population earns £5m a year.

Population is 60,000,000, but for ease, we'll say 600 (you can add all the 0's to the sums if you like).

Total earnings = £44,850,000

Average mean earnings of all workers = £77,750, even though, in this case of 600 workers, only 6 earn more than £25,000 a year.

Yes, a small minority (in this case 1%) can make a massive difference.

FTBFun

Graham_Devon wrote: »

Ok. Quick scenario.

99% of the population earn £25,000 a year.

1% of the population earns £5m a year.

Population is 60,000,000, but for ease, we'll say 600 (you can add all the 0's to the sums if you like).

Total earnings = £44,850,000

Average earnings of all workers = £77,750.

Yes, a small minority (in this case 1%) can make a massive difference.

.....except for there is no way on earth 1% of the population earn £5m a year. These figures are slightly out of date, but it appears that in fact the wages for the top 1% start at just under £150k, and only 6,000 people (0.01%) earn more than £1 million a year.

http://en.wikipedia.org/wiki/Income_in_the_United_Kingdom

Graham_Devon

FTBFun wrote: »

.....except for there is no way on earth 1% of the population earn £5m a year. These figures are slightly out of date, but it appears that in fact the wages for the top 1% start at just under £150k, and only 6,000 people (0.01%) earn more than £1 million a year.

http://en.wikipedia.org/wiki/Income_in_the_United_Kingdom

It's just an example of how averages skew.

Change the figures if you like. Outcome is the same.

We know the actual skew. It's about £36k mean, and £25k median.