The Economist: House prices overvalued

Thrugelmir

michaels wrote: »

Incomes in the UK have risen in real terms over the last 40 years,

Which coincides with the progressive increase in availability of credit from the banks. 40 years on the UK is burdened with a high level of consumerd debt. Along with falling average disposable incomes. Not a recipe for a positive outcome in the short to medium term.

BertieUK

House valuations these past couple of decades have, to coin a pun, had simply gone through the roof and I would like to know the answer to the following question.

Our last property was purchased in 1996 for £94,000
Then it was valued in 2009 for £325.000 finally selling at £260,000

Who or what determines the price to have rocketed by so much?

To someone like myself, it sounds rather crazy to assume that this speed in prices could have continued like this, in the end,well as we all know it went pop, was this avoidable? Thank you...

System

I can't help but think the Economist meant to write "more expensive than they used to be" rather than "overvalued".

michaels

Thrugelmir wrote: »

Which coincides with the progressive increase in availability of credit from the banks. 40 years on the UK is burdened with a high level of consumerd debt. Along with falling average disposable incomes. Not a recipe for a positive outcome in the short to medium term.

I entirely agree with you that this effect can work in two directions; and there is another factor, until recently other expenditure categories have become relativly much cheaper, especially food, but this is now reversing, again squeezing the proportion of income that can be spent on housing.

IveSeenTheLight

michaels wrote: »

This analysis assumes that the proportion of income people are willing to spend on housing is invariant to income. I would contend that as incomes rise the cost of other expenditure might not change that much (food, energy, sky, mobile) leaving more spare income to spend on housing. Incomes in the UK have risen in real terms over the last 40 years, the supply of housing is restricted, is it really a surprise that we now spend a larger proportion of income on housing?

This is showing that the Mortgage repayments t as a percentage of income is 26.1% against the 30 year average of 36.3%
http://www.lloydsbankinggroup.com/media/excel/2012/HPI_Quarterly/AffordabilityQ32012.xls

It would seem that currently mortgage payers are paying a lower proportion of income on the mortgage.

michaels wrote: »

Hasn't the standard of housing also increased during the period?

I would conclude that the standard of housing has also increased, however there was probably a period where new builds where thrown up, corners cut and squeezed into available space that would comparitively mean that older properties provided better value.

I do think the new builds are redefining the scopes to cater better for potential buyers.

Maybe this is because there is no rampant HPI at the moment and the builders are having to provide more to compete for buyers.