Radio5 - houses to rise 40% in 4 years.

Generali

Melissa177 wrote: »

Talking about the average is meaningless if you don't know the mean. Very very high City incomes, and very very expensive houses completely skew the scale.

It would be much more instructive to look at the median house price and the median wage for a start.

The correct way to look at almost any market price is at the margin.

For example:

What's the value of a house on Battersea Park Road, Battersea?

Is it the average price paid? You want to include the price paid by the couple on the corner that bought in 1948? That's going to skew things a lot more than any City bonus. How do you include the house bought in 1899 that was inherited in 1940, 1960 and 1996?

Perhaps it would be possible to index the price the olds on the corner paid. What deflator do you use? RPI/CPI/HPI/Wages?

The best way to value any asset is the last market price paid as far as I know. I'm perfectly happy to see another way to look at it but I don't know what that could be.

Enlightenment sought from all, as ever.

tomstickland

What is the object of the exercise?
I was assuming that we were talking about some sort of "house price affordability" index. ie: based on current house prices and compared with current income leves.

Generali

tomstickland wrote: »

What is the object of the exercise?
I was assuming that we were talking about some sort of "house price affordability" index. ie: based on current house prices and compared with current income leves.

My point is that a comparison of averages isn't very helpful. The average person buying the average house doesn't happen very often.

My guess is that BTL buyers are extracting equity from highly priced, already owned houses to finance new purchases and so out bidding others. They're borrowing against frothy equity.

tomstickland - I'm interested to know what you knowledge you think can be gleaned from average and marginal pricing. Is average pricing helpful at all? I don't think so, personally.

tomstickland

An average is always an attempt to turn a set of data into a single figure. A full understanding of what's really happen will require further analysis of the data.

In terms of what it means if you take average house price over average income, it gives a rough idea of how expensive houses are relative to incomes. You can't draw huge conclusions from it changing from 6.8 to 7.4, for example, but if it changes from 2 to 12 over five years then it's telling you something about the price of houses.

All this is assuming that the distributions are approximately similar in shape.

Martinslovechild

Strangely enough, according to figures from Nationwide for First-Time Buyer House Price Earnings Ratios, Northern Ireland has more than halved in affordability in just 4 years (i.e. more than doubled in price), having gone from 3.6 times average earnings to today's 7.4 times!!

London has increased from 3.2 times earnings in 1997 to today's 6.9 times!!

The average for the whole of the UK is 5.3 times average earnings, although a number of regions are lower (predominantly Scotland, Midlands & The North). The most affordable region in England is currently The North at 4.4 times average earnings. This has crept up from 2.0 times in 2000, i.e. more than doubled.

Interestingly, at the peak of the last housing boom in the late 80's, London hit just 5.8 times average earnings before crashing to 2.6 times in 1994 (how good would a figure like that look to today's first-time buyer?). This makes today's figures look rather huge by comparison.

Of course, we didn't have the 'flexible lending criteria' back then that banks have since made available to wanabee borrowers. However - it doesn't take Einstein to work out that if an average UK property used to cost a first-time buyer just 3.9 times their salary at the peak of the last housing boom before prices came crashing down, then this makes today's 5.3 times look like a monster!.

The question is - where's the peak? Assuming that the average borrower was allowed multiples of up to 3 times their salary during the last peak and it peaked at 3.9 (i.e. 30% above maximum borrowing), but they can now borrow up to 5 times, then the question is "will we see a peak of 6.5 times average earnings (i.e. 30% above today's maximum borrowing) ?"

Hypothetically, if this were the case, then it suggests that we're still a way off the top of the current housing cycle (2 to 2.5 years away). However, it also suggests that the falls will be much greater than during the previous crash due to the fact that housing historically follows a long-term trend. Presently, we're well over 30% above the trend which 'experts' say is sustainable due to the usual supply & demand arguments. The same arguments didn't help Hong Kong or Japan in the 80's, both of whom saw their property prices decimated.

[Deleted User]

Nice stats MLC just about says it all really

Crashest were worst in london last time in 92, its no surprise that londoners are the most in debt to salary people in the country so satan will make them pay the most.

Poppycat

I dont count myself as making a killing. I bought my 1st house in 89 for 37K when interest rates were up 16%. For a few years I lived in negative equality and like many people we made sacrifices, and did without things. I sold that house for 111k after 17years (hardly a killing). The equality I gain from that sale went on to the new house.

It might be our house one day, but then again, it makes you wonder when it comes to sell they take it off you when your in care

I just got my 2nd house and paid 150k, and 20 year mortgage again money is tight.

like many people we dont count ourselves as making a killing just moved on to the next house up the chain primarily not for making money but for a home. I count myself fortunate now as I feel sorry for people just starting out, I have kids of my own and like many other people the only way they get on the housing ladder now, is either win lottery, a nice handout from someone, or get a well paid job, or seek a partner with money.

wannabedebtfree wrote: »

The reason house prices will continue to rise for now because of the lucky people who got into the market early enough and have made a killing by selling it on and downsizing/moving area. And while builders and developers are buying up anything that needs a bit of work, us waiting to step onto the ladder have no chance!

I asked my dad if hes ever considered selling up (his house cost him £19k in about 1989, its now worth over £250k - 3 bed house in the midlands) and he said that the trouble was that for his money he'd only end up with a house like he's got now.....and whats the point? If he downsized he'd only have a little bit left over as the gaps between 2 and 3 beds and 3 and 4 bed houses are closing, ho hum, its off to make sure my lottery is paid for!

franklee

Generali wrote: »

So after 50 years, average house price = 73 x average income.

So if the ideal is to borrow 3 times wage then the average house would need to contain 24.33 wage earning adults. So (assuming 3 beds) that's 4 in each big bedroom, 2 in the box room, 8 in the lounge, 2 in the hall, 2 in the kitchen and 2.33 recurring in the shed

(I bags the shed).

No wait, I've got it. What we need to do is invent the vertical bed, a wardrobe type space where you can sleep standing up. I might try sleeping in the wardrobe to see if it's feasible.

(I still bags the shed).

dunnomate

This is complete rubbish !!!!!!!!!!!!!!! We are witnessing the tipping point with interest rates on the way up & so are repossessions !!! I feel a housing market correction coming on !!!!

RHemmings

Martinslovechild wrote: »

Strangely enough, according to figures from Nationwide for First-Time Buyer House Price Earnings Ratios, Northern Ireland has more than halved in affordability in just 4 years (i.e. more than doubled in price), having gone from 3.6 times average earnings to today's 7.4 times!!

London has increased from 3.2 times earnings in 1997 to today's 6.9 times!!

The average for the whole of the UK is 5.3 times average earnings, although a number of regions are lower (predominantly Scotland, Midlands & The North). The most affordable region in England is currently The North at 4.4 times average earnings. This has crept up from 2.0 times in 2000, i.e. more than doubled.

Are these figures compared to local average earnings, or to the average across the entire country. I suspect the latter as there's no way that the average house price where I live is only 4.4 times average local earnings.