House prices need to drop 40% to be affordable discussion

nembot

wotsthat wrote: »

OK. 7.8 is the Nembot affordability index. Using your methodology what's the long term average? What was it this time last year? What was it 10 years ago?

Are you starting to see why affordability indices maintained by someone else, even if you don't agree with the numbers, are handy for spotting trends?

That's true and I certainly don't have the resources to perform any accurate trending either with regards to pricing.

There's a lot of data out there, relatively easy as you can see to make the numbers work from any viewpoint.

ukcarper

Median earning for full time male in 1999 was £19.8k, 2010 was £28.1k (ONS)
Average house price 1999 was £80k now £162k (Land Reg)

Therefore 1999 4x now 5.7x therefore a drop of 30% would get them back to 1999 when property was pretty much at it’s cheapest since the war.

Graham_Devon

IveSeenTheLight wrote: »

Where do you get your £228k figure from?

According to LR, the average house price is currently £162,347
http://www.landregistry.gov.uk/

So do the math.

Average salary according to ONS (2010) = £25,900

The data compiled by the Office for National Statistics (ONS) shows that the average annual salary for full time employees has grown by just 0.3% to £25,900 from £25,800 in 2009.

6.26x average wage.

40% reduction, would see average house price vs average wage at 3.7x.

Hence why such figures are not used by the more bullish.

No point using medians as in the above post. Though I do understand it inflates salaries!

ukcarper

nembot wrote: »

http://news.bbc.co.uk/1/shared/spl/hi/in_depth/uk_house_prices/html/houses.stm

^^^

Where did the the figures come from?

Sources:

England and Wales

Land Registry of England and Wales, Crown copyright. The information above is based on figures provided by the Land Registry of England and Wales.
Figures for England and Wales are for the period April to June 2011.

I’m not sure how they get those figures, as they are not on the Latest Land Reg release.

nembot

To be fair carper, prices were considerably cheaper in the early 90's after the start of the last crash in 1989. They started going up in 92, then dropped slightly and then consistant gains from 96 onwards. Kinda agree on the wage ratio, but ultimately the multiples and prices are still way out of whack - especially with an uncertain future ahead.

ukcarper

Graham_Devon wrote: »

So do the math.

Average salary according to ONS (2010) = £25,900

6.26x average wage.

40% reduction, would see average house price vs average wage at 3.7x.

Hence why such figures are not used by the more bullish.

Full time not male full time look at my previous post that uses consistent data.

wotsthat

6.26x average wage.

40% reduction, would see average house price vs average wage at 3.7x.

Hence why such figures are not used by the more bullish.

No point using medians as in the above post. Though I do understand it inflates salaries!

If it's 3.7x on that measure today, what was it last year, the year before 10 years ago. Using that measure are houses more expensive, cheaper or the same?

3.7x means nothing. It's a snapshot. It's like 'what's the meaning of life'? Answer: 42

Jimmy_31

IveSeenTheLight wrote: »

So in summary, you believe you (and sufficient others) would be immune to redundancies in an environment where high unemployment drives prices to reduce by 40%

I work in the construction industry via the self employed sole trader route, i really cant see the banks giving me or the lads i know with deposits a mortgage when lay offs are very very common in my line of work at the moment and the banks have reigned in the lending.

We knew we would need a large deposit anyway before the banks started asking for larger than normal deposits, due to our line of work.

Now that the house prices in certain areas have come down a fair bit it is now becoming more and more likely that those of us who have been saving large deposits will probably not need a mortgage.

I would welcome a redundancy but as it is in our game you get nothing anyway (just another lay off) so have always had things in place that would cover a mortgage whilst i was out of work, just like lots of the other lads.

ukcarper

nembot wrote: »

To be fair carper, prices were considerably cheaper in the early 90's after the start of the last crash in 1989. They started going up in 92, then dropped slightly and then consistant gains from 96 onwards. Kinda agree on the wage ratio, but ultimately the multiples and prices are still way out of whack - especially with an uncertain future ahead.

If you look at both the Nationwide and Halifax graphs of earning to average house prices you will see that in relation to earnings house prices have only been cheaper in the mid 90s.

Graham_Devon

wotsthat wrote: »

If it's 3.7x on that measure today, what was it last year, the year before 10 years ago. Using that measure are houses more expensive, cheaper or the same?

3.7x means nothing. It's a snapshot. It's like 'what's the meaning of life'? Answer: 42

Sorry, was just relating back to the OP.

3.7x is just slightly below the long run average. So 40% slightly over does it if we want to hit the long term average.

On page 2 of this PDF from the CML, there is a long running average prices to average wage graph:
http://docs.google.com/viewer?a=v&q=cache:DEZg051PL5oJ:www.cml.org.uk/cml/filegrab/012010Affordabilityandfirsttimebuyers.pdf%3Fref%3D7059+long+run+average+house+price+earnings&hl=en&gl=uk&pid=bl&srcid=ADGEESjFNPPZpYv6zgGQPKlt8My58EBNwEPG-U35lQ30N4CeWbvu1xTzD7z_V1Lhc0kwQtujU9IfrkwAs0eckgsyT5bo2-sSPaGNgy046josHVy0S8Bj-xOw0dvH9M7T8WtOHNLvzTmk&sig=AHIEtbTCOznvSss2P5v2hWe66_1ty-tqMA

Worth looking at while everyone throws around their preferred statistics.

proves Nembot spot on in fairness.