FT- Lex calls the HPC @ 20 - 25 %

ianmr65

Here's the full article (my bold)


Since July 2006 house prices have fallen 15 per cent in the US. Prices have, so far, barely budged in the UK. But now that they are actually falling year-on-year, how much further could they go?
Making predictions about a market that has defied expectations for half a decade is no easy matter. But a few things are clear. With the exception of a small dip before the Second World War, there is no precedent for a year-on-year drop that corrects itself without turning into a crash.

According to data collected by Nationwide during the last three house price crashes, the peak-to-trough fall in average house prices has generally taken three years and knocked between 15 to 30 per cent off real prices. Given an inflation rate of about 2.5 percent, that would point to a nominal fall this time of between 9 and 25 per cent.
Affordability ratios offer another clue. From 1970 to 2005, house prices averaged 3.7 times mean earnings, according to Capital Economics. Right now the multiple is 6 times. If incomes rise about 3.5 per cent annually, nominal house prices would have to drop by 32 per cent over three years to get back to historical norms. If the market overshoots and the ratio falls to 3 times earnings, prices would have to fall 45 per cent over three years.

However, historically low interest rates and the growth of two-income families may have fundamentally distorted the relationship between house prices and earnings. Monthly mortgage payments as a share of net household income may be a better measure. That ratio is now about 22 per cent, similar to the last peak in 1990. Getting back to the 20-year average of about 16 per cent would require at least a 20 per cent house price fall with constant interest rates, Cazenove calculates.

snoopy78

ianmr65 wrote: »

However, historically low interest rates and the growth of two-income families may have fundamentally distorted the relationship between house prices and earnings. Monthly mortgage payments as a share of net household income may be a better measure. That ratio is now about 22 per cent, similar to the last peak in 1990. Getting back to the 20-year average of about 16 per cent would require at least a 20 per cent house price fall with constant interest rates, Cazenove calculates.

I've been looking for monthly mortgage payments as a share of income, you are very well informed, any chance of you pointing me in the right direction to your source.

Thanks in advance

Kez100

I do believe there will be a crash but I can't see it overshooting unless we suffer high unemployment. There are too many FTBs sat waiting IMO.They will all try and wait to bag a deal but many (as we did in 1991) will jump on a tad early thinking that's it and with so many waiting for so long I think they will stop the overshoot. I'm betting on 30%.

ianmr65

snoopy78 wrote: »

I've been looking for monthly mortgage payments as a share of income, you are very well informed, any chance of you pointing me in the right direction to your source.

Thanks in advance

Well i didn't write this - It's an article in the ft's (financial times) lex column - www.ft.com/lex which is pretty much the only part of ft on-line, you have to pay for, (your can read most of the rest for free on-line - as long as you are careful with the number of articles, and register) - but you can read it all for free at public librarys.