Wednesday, Sep 16, 2009
Pointers are that the market will go DOWN DOWN DOWN
Times Online: Property prices are rising but I’m happy to rent for now
Nothing new, we keep reading it, the current blip is not sustainable driven by the cash rich, but I was surprised to read her loan to income ratios. " The average house price, according to our figures at Savills, is at present 6.4 times the average household income, down from 8.1 at the market peak in 2007 and compared with an average of 5.0 over the past 39 years (these figures vary widely depending on whose statistics you use.) This has led some analysts to say that property values have to continue falling by another 20-30 per cent to reach a proper level." Currently 6.4 (!!) at peak 8.1 yet still she has property 20 - 30% overvalued, so what if she had ratios back to what is truly the historic norm of 3.5, how overvalued is property then?
4 Comments
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1. Craigio said...
Surely some correction will have to happen, delaying it is madness (esp when interest rates will finally have to go up). Quick question did we ever have a sub prime correction as witnessed in the states?
I presume that crash was due to people borrowing money they couldn't afford (like Lehmans). I know that certainly happened here seeing people buying things they can ill afford. Add this that most people wont have a pension when they reach retirement age (like myself), this is a bubble of bubbles surely?
2. nomad said...
There appears to be confusion between average household income and average wage.
3. sybil13 said...
Ah, bear of little brain shows herself up again. Of course 4x's average wage for ONE income IS 8 x's for HOUSEHOLD, just never seen it put that way! Still Q average for past 39 years being 5 x's HOUSEHOLD . Sorry.
4. str 2007 said...
Household income to house price is a more accurate way to assess where prices might be headed as opposed to ave. wages to house prices. The majority of households have two incomes afterall and lenders lend against that second income.
Now the fact that historically (according to the above) the ratio has run at 5x HH income (I assume they take into account that the majority of households 30-40 years ago only had one income), I can't see that given the historically low interest rates for the last few years and lax lending why the ratio isn't above average.
The fact that interest rates are now likely to remain at low levels for some time suggests this level could well be maintained.
What will effect the ratio now is unemployment going through the roof, particularly if for example the majority of Civil Servants get put onto a 4 day week to reduce the wage bill by 20%. ( I think they'd be more likely to do that BTW than make 20% redundant).