Average house prices vs household income.

geneer

http://www.ritholtz.com/blog/2011/08/us-vs-canada-vs-australia-vs-uk-realty-bubble/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+TheBigPicture+%28The+Big+Picture%29

UK average home price has also detached from its long term Price/Family-Income ratio of 2.0 way back in 1997. The onset of record low interest rates shortly thereafter enabled consumers to buy more expensive Existing Homes w/o increasing their mortgage payments. Subsequent irrational exuberance swept the P/I ratio to an unsustainable bubble high of 4.9 in 2007.

Interesting. It seems that the long term price to house hold income is 2.0. Increasing to 4.9 in 2007.

This would seem to fly in the face of the picture a certain angry aberdoomian was inclined to paint.

Comments Hamish?

purch

Interesting :rotfl:

Why read this bollox, and even more so, why post it on here.

The moron who writes this blog has no idea where the UK is, let alone knows anything about our economy.

UK average home price has also detached from its long term Price/Family-Income ratio of 2.0 way back in 1997. The onset of record low interest rates shortly thereafter enabled consumers to buy more expensive Existing Homes w/o increasing their mortgage payments

Base Rate was 7 1/4 % in 1997........7 1/2 % in 1998 (shortly afterwards)..5 1/2 % in 1999.......6% in 2000

Record Low..........my !!!! :eek:

The blogger is clearly a cretin.

StevieJ

Was it really so easy to buy in days of yore? Here is someone commenting on Jimmy Greaves auto-biography.

Greaves portrays an age of football that can be looked back on as a 'golden one', when attendances were massive and yet when players could mix with the fans in the local pub after a game. It's amazing to read that he travelled to Chelsea home games on public transport, and that when he became the most expensive player in Britain (£99,999) he still couldn't afford to buy a house.

http://www.amazon.co.uk/Greavsie-Autobiography-Jimmy-Greaves/dp/0751534455/ref=sr_1_1?ie=UTF8&qid=1312805681&sr=8-1

HAMISH_MCTAVISH

geneer wrote: »

Comments Hamish?

You've found an angry overseas blogger, who as others have noted hasn't got his facts right.

Provide a credible source for your claims and it might be worth debating.

Until then, not so much.;)

Alysia

HAMISH_MCTAVISH wrote: »

You've found an angry overseas blogger, who as others have noted hasn't got his facts right.

The average wage in 1997 was around £18k and the average house was around £60k. In 2007 the average wage was around £23.5k and the average house was around £180k.

If you assume 1.5 wage earners per house then that gives a 1997 ratio of 2.1 in 1997 and 5.1 in 2007, which tallys with the blogger's figures. Having said this, I'm not quite sure what point the blogger is trying to make though, other than that houses sell for cheap prices at the bottom of a bust and expensive prices at the top of a boom.

We actually bought a house in 1997 but our mortgage had rates of around 10% or 11%, so comparing just the cost of the actual house then and now might be a bit of a blunt methodology if you're looking for true cost to the purchaser.

geneer

HAMISH_MCTAVISH wrote: »

You've found an angry overseas blogger, who as others have noted hasn't got his facts right.

Provide a credible source for your claims and it might be worth debating.

Until then, not so much.;)

:rotfl:Unlike your favourite price/income ration stats (which make no distinction between household and single salary income thus rendering the whole thing a bit pointless) these statistics seem to be very clear.

Price Vs Family income. Letting us compare apples with apples.
The comparitive increases chime with the nationwide first time buyer to house price rations.

I see grumbling assertions that the facts aren't right, by I see you providing no evidence of the same.

geneer

purch wrote: »

Interesting :rotfl:

Why read this bollox, and even more so, why post it on here.

The moron who writes this blog has no idea where the UK is, let alone knows anything about our economy.



Base Rate was 7 1/4 % in 1997........7 1/2 % in 1998 (shortly afterwards)..5 1/2 % in 1999.......6% in 2000

Record Low..........my !!!! :eek:

The blogger is clearly a cretin.

Really?

The onset of record low interest rates shortly thereafter enabled consumers to buy more expensive Existing Homes w/o increasing their mortgage payments.

So falling interest rates, shortly thereafter, didn't allow consumers to by more expensive homes without increasing mortgage payments? Really? That didn't happen.

Sigh.

Alysia

geneer wrote: »

Price Vs Family income. Letting us compare apples with apples.

I see grumbling assertions that the facts aren't right, by I see no evidence of the same.

I think that the facts you put up at the top are correct. So you are comparing apples with apples, as you say, to look at family income versus the price of the house. What the figures obviously don't tell you is the overall picture of the overall difference in cost of buying a house in 1997 and 2007, because that would require looking at interest rates, household make-up, sterling as a currency, disposable income levels and a variety of other factors.

But the blogger is correct. Houses at the bottom of a bust are always going to have a cheaper purchase price relative to income of the people buying them than houses at the top of a boom. Not sure that that tells us a lot that we didn't already know though.

HAMISH_MCTAVISH

Average Household income:
1997 £34,796,
2007 £53,835
Total increase over ten years is +55%

House prices rose by more than household income.
Average house price 1997 £62,000, and in 2007 £182,000

So in 1997 the house price to average household income ratio was 1.77.

And in 2007 the house price to average household income ratio was 3.38

Of course, this blunt analysis (whilst enough to prove geneer's claims of going from 2 to 6 times income as wrong) is flawed, as it only measures prices from the the bottom of a bust to the top of a boom, and also takes no account of other essential items getting cheaper relative to income, nor of mortgage rates reducing.

For example, all of the following categories of essential expenditure rose by less than household income's 55% rise:
food +22%
water +32%
electricity +17%
gas +46%

And average mortgage interest payments fell by around 33%.

Hence why the percentage of disposable income required to service a mortgage payment in 2007, at 45%, was just slightly above the long term average of 37%. (It's just 29% today)

So the reality is that housing costs in 2007 were only around 20% less affordable than the long term average. Hardly surprising give the scale of the housing shortage, and most certainly not a cause for concern.

Graham_Devon

HAMISH_MCTAVISH wrote: »

(whilst enough to prove geneer's claims of going from 2 to 6 times income as wrong)

Well it isn't, as the figures in the OP were not based on household income.

For example, all of the following categories of essential expenditure rose by less than household income's 55% rise:
food +22%
water +32%
electricity +17%
gas +46%

Good lord Hamish. I have never seen percentages worked in such a way that you completely ignore the actual monetry value, to make your completely spun argument.

Let me add your figures up. 22+32+17+46% = 117% rise.

Yet a 55% increase in household income.

Hmmm. And there you are telling us costs haven't gone up as much as wages have. (Plus you have missed out loads of stuff, clothing, petrol / diesel, transport, telecoms, childcare etc).

You blithering fool.

Percy1983

To put it simply.

I would rather have bought in 97 with high rates than now with low rates.

97, lower mortgage, high interest, interest rates come down, low interest on smaller mortgage.

Now, higher mortgage, low interest, yeah great until rates go up and I have a big mortgage + high interest.