Tuesday, May 05, 2009
Calculations of the trough
Write about property: More on the cause of UK House Price correction
This article is one of three linked articles based on an original, you can click through to the original article. Interesting because seems to me there are more moves to calculate the likely trough price for housing by (reasonably enough) matching data to previous house prices. Should this idea become more popular in the media, ipso facto becomes true, and the arrival of the bottom comes quicker which is a benefit to the economy. These calculations are based entirely on the corrected price being a function of FTBs salary, suggesting that mortgage payments at the bottom will be 50% of a FTB salary. Interesting but ignores one crucial fact, FTBs in 2009 are already carrying debt from student loans/credit cards/personal loan, which they were -not- in 1993.
7 Comments
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1. mark wadsworth said...
That's all good fun, but in a funny sort of way, interest rates don't matter nearly as much as people think*, so a straight prices-to-earnings ratio is just as good as a yardstick.
* The lower the rate, the higher the price now, but the bigger the impact of a future interest rate hike, ergo, buying when rates are very low (like now) is very risky unless you can lock in for the next ten or twenty years.
2. crunchy said...
Oh the the tease! 20years fixed.
3. Neil B said...
"Interesting but ignores one crucial fact, FTBs in 2009 are already carrying debt from student loans/credit cards/personal loan, which they were -not- in 1993"
Why are FTB's different now to those in 1993 or any other year for that matter? Credit Cards & Loans are not a post Millenium invention.
4. Liambailey said...
Hi.
I wrote the 2 articles on Write About Property. To Mark Wadsworth: They matter in terms of continuity as it is a looking back to predict the future scenario. Interest rates affected the affordability index during the last crash, and they affect it now. The HPER index is therefore less useful as a way to guage what this correction will do, but as you say, a yard-stick may be a good way to describe it.
5. Bleakhouse said...
Another modeller who has missed a factor.
The modellers have been forced to accept that house prices can go down as well as up, now they must factor in that average incomes can go down as well as up.
I don't hear the fat lady singing yet.
6. str 2007 said...
Not many fixes available over 2 years, a few at 5 years but the best part of 5%. No cheaper than back in 2005 when you could fix at 4.79% for 10 years.
Re: the ist time buyer 50% of salary thing and interest rates.
Interest rates make a small difference to a repayment mortgage but a much larger one to an interest only mortgage as a percentage of monthly payments.
The big question is will they allow interest only mortgages for home owners. If they do then does 50% of FTB salary mean the interest element will be 50% (in which case we're already there.
If it meaqns a proper repayment mortgage this would be more accurate but should really be calculated on motgage interest rates of about 7% instead of the 5% being offered.
One crucial point however. If they make homeowners have repayment vehicles but don't enforce it on BTL mortgages then the huge difference, particularly with low interest rates will always price out a FTB.
They will never compete with BTL. (Caveat some BTLers survive what's coming).
So perhaps the bottom of the maarket should still be calculated on the BTL model but with a small margin of profit.
7. stillthinking said...
UK pension funds offer fixed rate 20 year loans.
...to our beloved government only.