Tuesday, Jan 05, 2010
Global house price valuations
Economist: Ratio rentals
House prices are still far above their fair value in many countries—though no longer in America ( for 'Britain' +28.8% )
Posted by 51ck-6-51x @ 01:35 PM (1778 views) Add Comment
13 Comments
- If you do not have an admin password leave the password field blank.
- If you would like to request a password allowing you to add comments and blog news articles without needing each one approved manually, send an e-mail to the webmaster.
- Your email address is required so we can verify that the comment is genuine. It will not be posted anywhere on the site, will be stored confidentially by us and never given out to any third party.
- Please note that any viewpoints published here as comments are user's views and not the views of HousePriceCrash.co.uk.
- Please adhere to the Guidelines
1. confused76 said...
"Scarcity of supply or population shifts are often used to rationalise high house prices, but such fundamentals should push up rents, too."
2. mark wadsworth said...
Re what C76 says, that was a blinding insight I first read on this here fine 'blog a couple of years ago, and is the ultimate counter-argument to this whole "Britain is a crowded island" nonsense.
The Nationwide sometimes include a chart in their monthly surveys showing ratio of prices to income and prices to rents, which map almost exactly. In other words, the rent to wages ratio is very, very stable (which I established as the first rule of house prices twenty years ago).
3. bellwether said...
The scarcity of supply story is absolute nonsense. There was no population explosion in 2002 when house prices went parabolic from fair value (nearly doubling over the next 5 years in Scotland) but guess what interest rates were rock bottom and banks were handing out multiples of 6 x salary. This has everything to do with the oversupply of £ almost nothing to do with the the undersupply of property.
The double whammy for the uk is that the income part was generated by jobs related to credit and hosuing eg construction/ /banking/retail all credit/house as ATM related phenemenon and all now compromised.
The uptick in housing over the past few months is eery, are things really that bad that we so badly need to keep the lie going.
4. letthemfall said...
The undersupply argument only make any sense long-term if a growing proportion of houses are left standing empty. Reminds one of Centrepoint in the 70s.
5. estrader said...
@1 - Remove record low interest rates, remove a lenient repossession policy, remove an upcoming election and remove Q.E, what are you left with? Funamentals!
6. This comment has been removed as it was found to be in breach of our Blog Policies.
7. growler said...
@estrader.... Freudian "Funamentals"
Why is "fund a mental" so ironic when considering the housing market boom ;-)
8. estrader said...
@6- Can you believe I wrote that in Word first to check spelling but missed the BIG RED LINE!?
When I use the term 'FUNDAMENTALS' I refer to natural/free market forces. Banks which made bad loans should have gone bankrupt along with those who over borrowed. You can’t say that it is supply and demand when prices are rising and a global financial crisis when they are falling. The GFC was the effect, not the cause.
9. tenyearstogetmymoneyback said...
Mark I thought we discussed this a few months ago along. I don't think the ratio is stable at all.
Otherwise how come people like me can afford to rent places we couldn't possibly buy. At the same
time there was a bit of a competition as to who had the highest price / annual rent ratio. At 40
(based on 2007 prices) I think I am close to the top.
Some time ago (it might even have been a couple of years ago) I read a long paper by someone
at the Fed who used the same ratio to show how overpriced UK house prices are.
Personally I have always beleived that renting should theoretically be more expensive than buying
because of factors like void periods, letting fees, gas inspections etc. Of course the thing that breaks
this rule is rising prices. Three years ago landslord weren't even worried if they had a tennant as the
big "profits" were from price rises.
10. mark wadsworth said...
@ Tenyears, the rents-to-wages ratio is incredibly stable, I noticed this twenty years ago and it is a cold hard fact.
We are also renting a place towards the top of our budget limit, with a price-to-rent ratio of 40 (at 2007 prices) that I wouldn't particularly want to buy (even at today's prices, it would be eight times my salary), but if it fell to a price at which the theoretical mortgage (assuming 6% interest + repayment was the same as the rent) I'd happily buy it.
(Then I'd knock it down and start again, because the location is great, the house is a monstrosity).
11. tenyearstogetmymoneyback said...
Hello Mark
Thanks for the reply. In the previous post you said "prices to income and prices to rents"
I can believe that "rents to wages" is stable. For a start it is very unlikely to exceed 1.
In contrast with low interest rates some people seem to think that 10 x salary mortgages
aren't a problem.
12. mark wadsworth said...
@ Tenyears, to clarify, over the last ten or fifteen years,
1. the price-to-rent ratio has trebled;
2. the price-to-wage ratio has trebled but
3. the rent-to-wage ratio has stayed the same
I take it we are agreed on that basic observation.
13. tenyearstogetmymoneyback said...
Mark - I agree completely.