House Price (Non) Crash 1

Generali

ManAtHome wrote:

On average, wages aren't going up by a great deal, but a lot of "essentials" costs are clicking up by the odd £5 or £10 a month. It's a bi like ageing - you see yourself each day so don't really notice, then it hits you rather suddenly. Forget about "if IRs hit 9%", think more about that essential inflation running around 6% pa and after-tax pay rises at less than 2%.

It's unlikely to be The Big Shock, more likely to be the final straw...

With you on this one. All you need to do is a simple compound interest calculation to realise that something has to give. With wages rising at about 4% and house prices at 9% in about 40 years, the mythical average house is worth 40 years of average joint male+female gross income - if you inherited such a house in 2046 you'd never have to work again!

meanmachine_2

Woby_Tide wrote:

The arguments to the contrary are almost entirely unable to give fundamental explanation of how the market continues to be strong and how it continues to be maintained.

It really isn't complicated Woby.

In early 2005 I could only borrow, say 120K from a high street lender.

As a result, the market was starting to deflate.

By the end of 2005, interest rates had been trimmed, and most high street lenders - desperate for share - had changed their lending criteria.

Now I could borrow 220K. Hence a reverse in the market.

Simple as that.

Houses are no more affordable. In fact, they're now even more vunerable to economic shocks. But that's the main reason why the market "bounced back".

Financial recklessness.

lisyloo

I agree with meanmachine.
There is a lot more credit available to people these days.

Most people do not look at the fundamental value when buying a house.
They look at what they can afford PER MONTH.

Some people may be sub-conciously expecting their mortgage to delate in relatio to earnings like it did in previous decades and that just is not going to happen.

abaxas

lisyloo wrote:

I agree with meanmachine.
There is a lot more credit available to people these days.

Most people do not look at the fundamental value when buying a house.
They look at what they can afford PER MONTH.

Some people may be sub-conciously expecting their mortgage to delate in relatio to earnings like it did in previous decades and that just is not going to happen.

That is true in all credit based purchases.

Been looking for a new(ish) car for the 'significant other'. I keep wanting to see the figures, they refuse and always ask 'do you have a monthy payment in mind, sir?'.

People should always remember that payments can go up!

meanmachine_2

lisyloo wrote:

I agree with meanmachine.
There is a lot more credit available to people these days.

Most people do not look at the fundamental value when buying a house.
They look at what they can afford PER MONTH.

Some people may be sub-conciously expecting their mortgage to delate in relatio to earnings like it did in previous decades and that just is not going to happen.

And the most contemptible part was lenders like Nationwide predicting a rise of between 0-3%, KNOWING that the market would inflate much more than that because they'd just abandoned age-old criteria.

So yes, in 2005, based on the old lending practices, houses had become unaffordable.

But by then aggressive firms like Northern Rock had arrived, and were pushing new forms of lending, based on highly dubious "affordability" terms.

The age of "affordability" however is going to be incredibly vulnerable to changes in interest rates as well as all sorts of other economic factors.

Once banks have exhausted "affordability", what will be left? They either relax further or contract and the whole thing starts again.

It's all about the banks. Nothing to do with sellers, buyers, or Poles.

meanmachine_2

According to this report the ave mortgage is now 142K.

http://www.dailymail.co.uk/pages/live/articles/news/news.html?in_article_id=426519&in_page_id=1770

At IRs of just 5% that's £839 a month, which is approx 60% of the take home of the average wage.

SO even in terms of "affordability", today's prices are unaffordable.

Scary times ahead.

Still not as bad as 1989, where a mortgage would claim something like 80-90% of one salary, hence triggering a crash.

So we've got a long way to go yet. But it'll end in recession eventually.

Hereward

meanmachine wrote:

According to this report the ave mortgage is now 142K.

http://www.dailymail.co.uk/pages/live/articles/news/news.html?in_article_id=426519&in_page_id=1770

At IRs of just 5% that's £839 a month, which is approx 60% of the take home of the average wage.

SO even in terms of "affordability", today's prices are unaffordable.

Scary times ahead.

Still not as bad as 1989, where a mortgage would claim something like 80-90% of one salary, hence triggering a crash.

So we've got a long way to go yet. But it'll end in recession eventually.

I do not draw the same conclusion that today's prices are unaffordable, as your figures quite clearly show that the average person, with the average mortgage and salary, still has 40% of their take home pay to spend on other things. To demonstrate unaffordability we need to know what percentage of the average take home wage is spent on other essential items and when this is included, does this exceed 100%? Of course this all assumes that the average household only has one income, so households with more that one income can afford slightly more.

Woby_Tide

meanmachine wrote:

It really isn't complicated Woby.

Do I take my tongue out of my cheek now or later?

Plus the quote you picked up on wasn't even my words, it was a copy of a previous post

leftieM

I just wanted to chuck something in....
I heard on the radio that house prices fell by 1% last month (Halifax).
But house prices in Northern Ireland were up by 53%.
I hope I heard wrong and they actually said 53 pounds.

Sorry I should have said that was for the year, not the month!

meanmachine_2

So you didn't write post #26 then?

If not, who did?