"Expectations are too high", "It's always been hard"

Turnbull2000

So let's see how today compares then...

Inflation adjusted prices laboriously gathered from Nationwide;

1975 Q1 69.6K *1
1976 Q1 62.9K
1977 Q1 58.1K
1978 Q1 59.3k
1979 Q1 69.7K
1980 Q1 74.4K
1981 Q1 69.1K
1982 Q1 63.4k
1983 Q1 65.7K
1984 Q1 70.5K
1985 Q1 74.8K
1986 Q1 76.5K
1987 Q1 84.4K
1988 Q1 90.1K
1989 Q1 110.4K *2
1990 Q1 102.5K
1991 Q1 86.4k
1992 Q1 79.4k
1993 Q1 74.9k
1994 Q1 74.9k
1995 Q1 72.1k
1996 Q1 70.5k
1997 Q1 74.6k
1998 Q1 81.3k
1999 Q1 85.4k
2000 Q1 96.1k
2001 Q1 101.3k
2001 Q4 110.3K *3
2002 Q1 113.6k
2003 Q1 138.7k
2004 Q1 158.1k
2005 Q1 166.9k
2006 Q1 171.1k
2007 Q1 179.2K
2007 Q3 184.1K *4

*1 Priced had boomed prior to this data, but mortgage holders had debts quickly reduced and potential buyers provided another look in following massive salary inflation.

*2 Peak of the second boom. Prices soon corrected and salary inflation was moderate. Much more painful than the 'crash' of the 70's.

*3 Lift-off! Post 9/11, global interest rates are slashed and continue to be held low. The money printing machine is in overdrive and excess liquidity is flowing through most Western economies. The US, New Zealand, UK, Spain, Ireland and many more developed countries experience unprecedented house price inflation.

*4 Most recent UK data. US, Spain and Ireland are now facing a down-turn. UK market is uncertain. What can be deducted from the above is that current UK prices are hugely above historical trends. Unfortunately, globalization will prevent salary inflation coming to the rescue this time. Earnings growth is largely subdued, and in some instances below inflation measures. First-time-buyers at an all time low of 8.8%

pamaris

Right, well it hasn't really "always been hard". Really. My OH's parents bought their 3 bed semi on one blue collar wage in a nice area in 1977 for £8000. According to various inflation calculators, that is equivalent to £31k in today's money. So, basically, the situation for them was that the money they had to plonk down for a decent family home was equal to £31k in today's money.

The current estimated value of the house is about £160k.

carolt

Thanks for the data, Turnbull2000. It would be really interesting if someone could post the corresponding average salary figures for those years - the we could finally give the lie (or not) to the myth that "it's always been hard".

As I posted elsewhere, my parents are another example of a couple who bought a 3 bed semi (their first home) on a multiple of 2.5 times a single, manual worker's salary. The equivalent house is now worth about 500K.

Don't let's forget, the reason they borrowed that amount, and no more, and the reason it was based on one salary and not two, was because that was (sensibly) all that building societies would allow. They had also saved a good deposit, equivalent to about a year's salary, because, again, building societies would not allow 100% mortgages (let alone 125%!) as we have now. As those restraints have been removed, house prices have risen to the limits of what people have been able to legally borrow - or higher, in the case of 'liar loans' - rather than the limits of what they might be able to repay in future.

If house prices come down, whilst for people such as myself who have made the decision not to take on that level of debt it will make conditions easier, and buying more affordable in the future, we should not forget that some or even many of those who have chosen to buy at the PEAK of the market may find they get their fingers very badly burnt - as happened, of course to those who bought at the peak of the last boom and went on to face in some cases 10 years + of negative equity.

The truth is, and it's not rocket science, that at some points in the cyclical boom and bust we have in this country, it has historically been much easier to buy and at other points it is difficult to the point of lunacy - like now.

real1314

pamaris wrote: »

Right, well it hasn't really "always been hard". Really. My OH's parents bought their 3 bed semi on one blue collar wage in a nice area in 1977 for £8000. According to various inflation calculators, that is equivalent to £31k in today's money. So, basically, the situation for them was that the money they had to plonk down for a decent family home was equal to £31k in today's money.

The current estimated value of the house is about £160k.

You're suggesting that since 1977 inflation has only quadrupled prices?
I think you've missed a few years with that sort of figure.

And what sort of wage was your dad bringing in in 1977?
And, most importantly, what interest rate were they paying?

beingjdc

real1314 wrote: »

You're suggesting that since 1977 inflation has only quadrupled prices?

I'd say that's about right. The RPI has slightly less than doubled since it was launched in 1987, and I'd reckon prices slightly more than doubled beween 1977 and 1987.

carolt

I don't have a figure for 1977, but I do have one for 1980 - I was reading a newspaper from 1980 (!) which I found at my husband's grandparents house (as you do!). The one thing that really stuck in my mind was the headline that average earnings were now...wait for it...! £5000!

So I can't help on RPI, but on wage inflation, at least, wages since 1980 have gone up by 4-5 times (I don't have an exact figure for average salary today, but I'm pretty sure it's somewhere between 20-25K).

So certainly, pamaris's parents, whatever mortgage multiple they got in 1977, would have found their mortgage of £8000 pretty affordable by 1980, a mere 3 years later.

Unfortunately, today's buyers can't expect their mortgage to be eroded by high wage inflation in the way buyers in the past quickly could - another point missed by those who claim that things have always been equally hard...... :sad:

Turnbull2000

The usual suspects also insist you must "work longer and harder" to ensure that first home affordable. I myself worked 10 weeks of overtime last year. So how much extra did I earn from that 400 hour grind? Sweet f**k all.

I've since moved jobs, yet paid overtime is still not on offer. Many youngsters entering the employment market are finding this is increasingly common.

Paid overtime is falling - but not fast enough...

Paid overtime is falling across the economy, but nearly half the employers surveyed by Personnel Today's sister publication, Employment Review, believe that it remains at excessively high levels.

Both figures are down from the previous year, and the decline is part of a long-term trend, with nearly one-third of staff working paid overtime in the early 1990s.

Employers cut overtime despite long hours

Four out of five employers have attempted to reduce paid overtime over the past 12 months according to research by IRS Employment Review.

Line managers are clamping down on paid overtime

Three out of five employers have taken steps to cut back on paid overtime over the past two years, the research shows.

Unpaid overtime worth £23bn in 2006

Employees in the UK worked £23bn worth of unpaid overtime in 2006, averaging an extra seven hours and six minutes a week of work, an analysis of official statistics by the TUC has found

Unpaid overtime affects 8 out of 10

The poll of 1,083 employees by employment law consultants Peninsula BusinessWise found that 81% of employees regularly work beyond their contracted hours without pay for an average of seven hours each month.

pamaris

real1314 wrote: »

You're suggesting that since 1977 inflation has only quadrupled prices?
I think you've missed a few years with that sort of figure.

And what sort of wage was your dad bringing in in 1977?
And, most importantly, what interest rate were they paying?

I looked up two different inflation calculators where you type in the year and the amount of money. Then I took the higher amount to be on the safe side; the other amount offered for what £8k would be worth in today's money was £28k.

My OH's dad was earning 3k pa in 1977 so it was a multiple of 2.66 times his income. I have no idea what the interest rate was... well according this page:

http://213.225.136.206/mfsd/iadb/Repo.asp

The range of interest rates in 1977 was between 14% and 5% so take your pick!

moneysavinmonkey

real1314 wrote: »

You're suggesting that since 1977 inflation has only quadrupled prices?
I think you've missed a few years with that sort of figure.

House was 8k now 160k that is x20 not quadrupled!!!!!!!

PasturesNew

Back then people could borrow 3x salaries. If they could have borrowed 5x or 6x salaries back then, the house prices would have been higher then.

Back then buyers weren't competing with BTL landlords/speculators. This has been a growth area since 1996 (at which time the volume was negligible). Less competition for property would also hold the prices down/steady.

Big City bonuses were not as nutty as they are today. A lot of bonuses for the past X years have been spent on property (holiday homes, 2nd homes, BTL).

poppy10_2

Good work, turnbull