Tuesday, Jan 02, 2007
Housing Affordability Crisis
Guardian: House prices 'in danger zone'
A Lombard Street Research study suggests that homes are at their most overvalued since the crisis of the early 90s. The UK Housing Affordability Index, is at 94.3 (against a post 1962 average of 100), the lowest since 1991.
Posted by jellycaster @ 05:33 PM (234 views) Add Comment
3 Comments
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1. tyrellcorporation said...
"We are in the danger zone. "If there is strong house price inflation this year in the low double digits and we have base rates peaking at 5.25% then house prices could become unaffordable by 2008."
Ummmm, she is suggesting that the market can allow for about a further 10% increase (approx) and then affordability will hit the buffers. I reckon lenders will offer 10x salaries over 50 years to keep it all going. After all the lenders seem to be in a win-win scenario.
2. Enuii said...
Hedging their bets or what, double digit 15% inflation and next year then bust.
Don't go there, buy an overpriced property next year and loose money.
Seems like a good tip to prompt a small fall early on rather than an all-out crash later.
3. Squirrell said...
Despite the negative overtones for the housing market, this seems an overly rosy view. Lombard still think housing is affordable!!! Maybe someone should come up with a better "affordability" definition that includes the effect of inflation. Back in 1991 inflation ate your debt, so while it was more expensive in the first year of the mortgage was it more expensive after 2 years? 5 years, 10years etc. Here in NZ they said a similar thing ie it was less affordable in 1989 than now - I did some quick sums though that included inflation which showed it was only less affordable for the first 3 years as inflation would have added 40% to your salary in the early 90s.
Another problem is it looks at household incomes - the average household now has 2 incomes, and often through necessity not choice. It would be nice to have some sort of quasi index called something like a "stress" index which includes both financial strain as well as the emotional toll taken on families where mum has to go to work so they can afford a house.