House prices need to drop 40% to be affordable discussion

ukcarper

Graham_Devon wrote: »

I've commented on that data many times.

Why not use nationwide yourself?

Nationwide long term average 4x now about 5.2x lowest since 1981 2.8x. A 40% drop would made ratio 3.2x prices would need to drop 23% to get to long term average.

The Halifax long-term average 4x lowest is 3x and it is now 4.36x it would take a 8.25% drop to get to 4x a 40% drop would give you 2.2x.

CML don’t know long-term average but obviously a lot higher than 4x lowest about 3.9x now about 7.2x a 40% drop would be 4.3x.

Those are the figure Nationwide and CML seem very similar and are about 1.84x the lowest whereas Halifax is about 1.45x. From all of that it seems to me house prices would need to drop somewhere between 23% and 8.25% to get to long term average probably nearer the 23% than the 8.25%.

ukcarper

wotsthat wrote: »

I've seen him do this before when he's misunderstood data. Instead of taking 5 minutes out just to check what's being explained he just keeps ploughing on.

I'm afraid 3.7x average income is the long term average as far as GD is concerned and he just can't see that even using his own figures it isn't.

I fail to see how anybody can look at the CML graph and not see the average must be well above 4%.

JonnyBravo

Long term average this.
Long term average that.

The CML report makes the point that the average is increasing, and explains a few of the reasons why it is increasing.

So presumably all of these "long term averages" are simply a lower figure than is applicable now as they incorporate data from a time when the factors influencing this "long term average" were vastly different?

Of course, that isn't to say the line can't undershoot whatever figure this average is in the coming months and years.

IveSeenTheLight

Graham_Devon wrote: »

I've commented on that data many times.

Why not use nationwide yourself?

Graham,
The three main house price indices is LR, Nationwide and Halifax.
I'm happy to discuss data at any time from any of those indices.

It's important to understand the methodolgy of any index you are referring to and as we are discussing mortgage multipliers, Halifax appears to have the best data in terms of analysing.

They break down to each quarter in terms of House Prices - Earnings ratio and Mortgage repayments as a percentage of income.

The data also goes back 28 years so give a broad outlook on the comparative data.

Nationwide seem to just have the graph posted on their monthly releases.
Potentially you could argue something like a 20% reduction based on their current circa 5%+ multiplier, reducing to their long terms average of just above 4%, however they do not appear to show an affordability index or their methodology on how they derive the UK house price to earnings (we can see how they use their house prices but not which wage figures have been used)

In balance, as Halifax are showing just 0.13 multiplier above the long term average and Nationwide are just over 1 times, you could argure that somewhere in between is what should occur (not taking any other factors into consideration).

Nothing like 40% to meet the averages

IveSeenTheLight

ukcarper wrote: »

The Halifax long-term average 4x lowest is 3x and it is now 4.36x it would take a 8.25% drop to get to 4x a 40% drop would give you 2.2x.

Latest data shows the current is 4.19 with the long term average being 4.06

Only a 3.1% reduction (or wage increase) would bring the multiplier in line with the long term average.

Arguably, house prices could remain static and if the country averaged a 3% increase in April, it would hit the long term trend, so arguably, no need for further drops

Pimperne1

Jimmy_31 wrote: »

I am planning on moving a couple of miles up the road from where i currently am, its a bit better of an area but most people would think it was rough but if you spend your life surrounded by lots of scroungers , thieves, drug dealers, sharks, smack heads etc then it comes to a point where you become a bit immune to it all and it doesnt really affect your way of life.

I know that might sound stupid to some people but if you know all the scum in the area and never ever let them take advantage of you then you and your family and friends will be left alone.

Lots of people made the mistake of moving to my area once all the new build estates went up during the boom because houses were a bit cheaper than surrounding areas and it was all they could afford.
I got to know quite a few of them through working on their homes and every single one of them regrets moving here.

This is how i know nobody will be rushing into these areas to buy up the cheaper houses.

Jesus Jimmy that sounds god awful. You never know you are lucky until you see what someone else has to put up with.

wotsthat

IveSeenTheLight wrote: »

Arguably, house prices could remain static and if the country averaged a 3% increase in April, it would hit the long term trend, so arguably, no need for further drops

It's all rather arbitrary though. House prices are what they are and so are wages - even the CML argue that affordability measures using multiples of wages are rather a blunt instrument.

I like these sort of arguments because the figures are quite interesting. However, no-one could realistically say that prices SHOULD be higher, lower, or the same based on these hypothetical arguments.

As with most arguments on here there's a focus on a single measure as if no other variables exist. Never mind how much the mortgage costs are, what disposable income is; instead drill down into the detail of that single measure as if that's going to provide an answer (example median vs average wages).

Day to day I'd guess that most people measure the affordability of their housing by the monthly cost vs. income. If petrol halved in price or food costs reduced dramatically then other things being equal my mortgage becomes more affordable. I only worried once about the price of the house I'm in and that was when I was working out if I could buy it - once the purchase is made ratios of house value to wages are largely irrelevant.

Jimmy_31

Pimperne1 wrote: »

Jesus Jimmy that sounds god awful. You never know you are lucky until you see what someone else has to put up with.

Like i said, it might sound stupid to some people.

I never put up with anything.

IveSeenTheLight

Jimmy_31 wrote: »

Yes its a rough area.

As a poster who believes there will be 40% nominal drops from now, I'm interested to know the area you are referring to.
IIRC it's just outside Manchester.

Looking at the Machester Metropolitan area, it seems to roughly reflect the UK average.

Peak in 2007
Sharp correction to beginning of 2009
Rises through 2009 into 2010
Another correction downwards
Now indications of stagnation

Loopgames

It's interesting reading people's 'predictions'..I'm not sure if 40% devaluation will or will not happen. I personally am just watching the area I want to buy a property and once I can buy at a price at the right time then i can come into the property game.

For example on at least a weekly basis I watch the prices in say east london like clayhall or ilford and do a simple search on rightmove to do a few things

1) check the number of 3 bedroom houses on sale up to a max. £300k. The trend is telling me that more and more houses are coming on the market under £300k e.g. in jan 2011 this count was 37 now it is 49.

2) The lowest price (or closest to my affordibility of £200k) the houses of similar build are at. So far the are approaching £250k but this house has been recently put on the market with an off of £211k but is not of similar build as the others closer to £250k.


I'm waffling a bit as i haven't thought how to put this in a contructive way but that's the jist of my own 'bargain hunting' in the property market. So I personally do not expect an average drop of 33% but I do expect that there will be a property to buy for around £200k - where they were originally £300k or so - whether it's a repossession or vacant buytolet failure or whatever. But the 'average' may not reach that value in the area...it may just be a few anomolies.