How many people should we prevent from buying a house?

wotsthat

Emy1501 wrote: »

There have been 3-4 four developments for rental only in my area in and around houses worth 500k-1m. At the same time there are new builds overlooking markets and roundabouts etc.

That's the answer to the question "can you rent houses in nice areas and buy houses in not so nice areas?" Of course you can.

The question posed was think of nice areas you'd like to live and then think of unpleasant areas you wouldn't like to live. I'm betting that that your 'nice' list is dominated by properties occupied by the owners and vice versa.

Should the government be encouraging increased reliance on the rental market. No, IMO, it's a step backwards.

Emy1501

wotsthat wrote: »

That's the answer to the question "can you rent houses in nice areas and buy houses in not so nice areas?" Of course you can.

The question posed was think of nice areas you'd like to live and then think of unpleasant areas you wouldn't like to live. I'm betting that that your 'nice' list is dominated by properties occupied by the owners and vice versa.

Should the government be encouraging increased reliance on the rental market. No, IMO, it's a step backwards.

I have no idea and it is not relevant if there are properties to rent in nice areas which people can afford to rent.

So what is the step forward and how do we get there?

ukcarper

shortchanged wrote: »

Yes wotsthat, but is still shows that house prices are still well above the long term average for prices to earnings, currently at 5 I believe according to that graph whereas the norm is 4. So that highlights there is still a fair way to drop.

Looking at graph line crosses long term average in 2002 when Nationwide average house price was about £110k mean wage was £20.6k so ratio about 5.3, average now £162.6k and mean wage is £26.8 so ration 6x so average price would need to drop to £142k or about 13%.

wotsthat

Emy1501 wrote: »

I have no idea and it is not relevant if there are properties to rent in nice areas which people can afford to rent.

So what is the step forward and how do we get there?

It's relevant if someone thinks (I do) that a declining proportion of owner occupiers will lead to less vibrant & sociable communities. I suppose the effect will be less marked if there are nice places to rent that are affordable.

The step forward is more houses in places where people want to live and work. Of course this isn't going to happen.

wotsthat

ukcarper wrote: »

Looking at graph line crosses long term average in 2002 when Nationwide average house price was about £110k mean wage was £20.6k so ratio about 5.3, average now £162.6k and mean wage is £26.8 so ration 6x so average price would need to drop to £142k or about 13%.

Or 3 years of sideways price movements and 4.3% average wage increases would put us in the same place.

ukcarper

wotsthat wrote: »

Or 3 years of sideways price movements and 4.3% average wage increases would put us in the same place.

Can't see 3 years of 4.3% but with a few % falls and 2% rises would have a similar effect.

camper_1982

House prices should stay where they are for the next 10 years. and peoples wages need to go up. People dont earn enough anymore. Minimum wage needs to be £10.00 per hour. Someone earning 15k 10 years ago, that wage should be around 25k.

jamesmorgan

Using house price to earnings ratio is a poor guide to affordability. The key metric is what percentage of net household income is used to pay for the mortgage. Over the past 27 years this has averaged 37%. As at the end of 2011 it stood at 27%. The last time it was at such a low level was back in 1997. This suggests that house prices are currently undervalued - the main reason for this is anticipation that mortgage interest rates will rise (rates would need to increase from today's 4% to around 5.5% to get back to 37%)

Housing is effectively a fixed supply - there are roughly the same number of houses as the number of households looking to buy a house. It is not easy to simply build a new house if you want one. You have to compete with everyone else looking to buy. Where you get competition for fixed supply assets, the price is likely to be determined by % of net income.

For house prices to fall significantly, one of the following would need to happen:

a) Wages fall -this is quite possible in the current climate
b) Mortgage Interest rates rise by more than 1.5% - again, quite possible
c) Major house-building activity so that supply exceed demand - not very likely IMO

Note that even if house prices fall, it doesn't make them more affordable. They will still consume around 37% of net household income.

Percy1983

jamesmorgan wrote: »

Using house price to earnings ratio is a poor guide to affordability. The key metric is what percentage of net household income is used to pay for the mortgage. Over the past 27 years this has averaged 37%. As at the end of 2011 it stood at 27%. The last time it was at such a low level was back in 1997. This suggests that house prices are currently undervalued - the main reason for this is anticipation that mortgage interest rates will rise (rates would need to increase from today's 4% to around 5.5% to get back to 37%)

Housing is effectively a fixed supply - there are roughly the same number of houses as the number of households looking to buy a house. It is not easy to simply build a new house if you want one. You have to compete with everyone else looking to buy. Where you get competition for fixed supply assets, the price is likely to be determined by % of net income.

For house prices to fall significantly, one of the following would need to happen:

a) Wages fall -this is quite possible in the current climate
b) Mortgage Interest rates rise by more than 1.5% - again, quite possible
c) Major house-building activity so that supply exceed demand - not very likely IMO

Note that even if house prices fall, it doesn't make them more affordable. They will still consume around 37% of net household income.

In many respects this is correct, but I do have a thought on this.

I would rather have low house prices and higher interest rates than the high house prices and low interest rates we have now.

Yes the overall sum is the same as far as monthly payments go but there is a key difference.

Buying with high prices and low interest rates means your payments can only go up (interest rate rises).

Buying with low prices and high interest rates means your payments can come down (or at least have scope to reduce and less odds on increasing).

jamesmorgan

Percy1983 wrote: »

Buying with high prices and low interest rates means your payments can only go up (interest rate rises).

Buying with low prices and high interest rates means your payments can come down (or at least have scope to reduce and less odds on increasing).

Yes, I would agree with this and I suspect most buyers do as well. This is probably why mortgage payments (and hence house prices) are about 25% lower than historic norms. This additional risk is being priced in.