Another Small Anecdote

[Marina]

I noticed a bungalow for sale a few months ago - quite near to where I used to live. It was on the market for 325k - which made me think 'prices still are not falling much'.

Just meandering through an agent's web site and saw it had sold - but the price is now £275k.

Still a bit top-heavy - £225k would be about right I think.

The market is full of mixed signals at the moment. Still loads of way overpriced rubbish - but, in-between, the odd one beginning to head in the right direction.

[North London Rent Girl]

I noticed a bungalow for sale a few months ago - quite near to where I used to live. It was on the market for 325k - which made me think 'prices still are not falling much'.

Just meandering through an agent's web site and saw it had sold - but the price is now £275k.

Still a bit top-heavy - £225k would be about right I think.

The market is full of mixed signals at the moment. Still loads of way overpriced rubbish - but, in-between, the odd one beginning to head in the right direction.

<{POST_SNAPBACK}>

225k? Is it a gold bungalow?!

[Marina]

225k? Is it a gold bungalow?! 

<{POST_SNAPBACK}>

I think you have to keep a grip here. If that bungalow went down to 225k - well I am as much a bear as the next man - but I can't see it going down much below that. If that was 225k - a 3 bed semi would be 175k - a 2 bed terrace - perhaps 135k and a 2 bed flat maybe 100k.

There are enough people round here earning enough to make a 2 bed flat comfortably affordable at 100k. I think that will be the bottom line round here.

[apom]

possibly she is right..

I live in devon where the average salary is about 17,000 a year..

Bit rubbish.. but its pretty..

house prices higher then london..

when it all shifts back peopl may talk about lower drops in the big cities.. but as the last five times..

In devon we go higher and fall further..

[RentingQuiteNicely]

Can't help but notice that prices are quietly edging down here in Bucks (even the wife agrees!).

Nothing much being said but houses that last year would have been on at £350k - 375k are now being marketed at 10% cheaper in my opinion.

Still need to fall alot further though........

[jay67]

An odd anecdotal story;can't work out why this Estate Agent has done this.Passed a small branch of Bridgford's EA today(Sth Manchester).The shop has room for about 12 properties(photo and details)in one window,and 24 properties in the other window.The latter window has,since Friday,been filled up with all the 24 property details scanned in,each with the word 'Sold' in big red letters,obviously scanned in over the top.Why fill two-thirds of your window space with (presumably)old sales?

Also noticed an increasing number of vendors offering to pay stamp duty,and odd things like detached bungalows on Wimpey estates coming up for rent,presumably as they were unable to sell.

[VacantPossession]

I think you have to keep a grip here. If that bungalow went down to 225k - well I am as much a bear as the next man - but I can't see it going down much below that. If that was 225k - a 3 bed semi would be 175k - a 2 bed terrace - perhaps 135k and a 2 bed flat maybe 100k.

There are enough people round here earning enough to make a 2 bed flat comfortably affordable at 100k. I think that will be the bottom line round here.

<{POST_SNAPBACK}>

They may be earning that where you are Marina, but don't forget some of the most expensive areas have the lowest wages. Cornwall being a case in point. Never mind the perceived median wage, the real average wage of many folks down there is anywhere between £14k and £18k. Just look at the ads in any Cornish paper.

By that criterion a 2 bed flat should be below 85k and a 1 bed flat below 70k.

That would take them back to early 1990's levels...not possible I'm sure...but desirable.

VP

[Marina]

They may be earning that where you are Marina, but don't forget some of the most expensive areas have the lowest wages. Cornwall being a case in point. Never mind the perceived median wage, the real average wage of many folks down there is anywhere between £14k and £18k. Just look at the ads in any Cornish paper.

By that criterion a 2 bed flat should be below 85k and a 1 bed flat below 70k.

That would take them back to early 1990's levels...not possible I'm sure...but desirable.

VP

<{POST_SNAPBACK}>

I hate to be a prophet of doom but there is a fact about the housing market that does not often get taken into account here.

There is a lot of mention of 'average' wages and their relationship to house prices. But, take a town with 1000 houses in it.

Let's say at any point in time 50 of those houses are for sale and in any one week 5 of them get sold.

Let's say 60 people are looking at any one time (the 50 sellers plus 10 potential FTBs). In my example the house prices of the 50 on the market will always be related to the earnings of the highest earning 8.5% of the buyers - or, if one works on the basis prices are set by what FTBs can afford - and say that each one of the houses sold needed a FTB - then the prices would be set by the earnings of the highest earning half of the potential FTBs in the market.

This is the supply and demand bit of the housing market. Not that there is an absolute shortage of houses - but that, at any point, only a relatively small percentage of the total market is available to be purchased. At the moment the percentage seems to be historically high - so prices are falling - but they will only fall until people earning 'good' not 'average' money can afford them.

If the market depends on FTBs it will fall until it hits the affordability levels of the top earners amonst FTBs. Surely this is what keeps the London market so absurdly high? Houses in places like Streatham, Clapham and Chiswick (dumps pretty much when I was a child) worth say 800k are based on the fact there are enough couples in London with a joint income of 200k to make these affordable - but completely out of reach of the couple on 'average' wages of 25k (or whatever people think it is these days).

Where I live is the same as Cornwall in that the windows of the recruitment agencies are full of jobs for 14k to 18k - above 20k seems to be quite rare. However, new build 2 bed flats go on the market for well over 200k (admittedly not selling now). How can this be? Simple. There are enough youngsters earning £40k and over who can afford the relatively limited supply of flats on the market at any one time.

The only reason I believe in a HPC - as opposed to a mild correction - is that I think we have an economic storm ahead - recession at the least, possibly a slump. In this situation very few people will contemplate taking on further debt, the market will stagnate and forced sellers will have to take what they can get.

If we don't get the economic storm, then I think we will only have a mild correction in house prices - especially given the historically benign interest rate environment.

Edited August 23, 2005 by Marina

[Gavin]

Although I normally agree with you Marina, I couldn't disagree with you more on this one.

I am perplexed as to why house prices have risen so high, and maybe you have a point, but average salaries are around 25k.

For a couple to have combined incomes of 200k, then they would have to be the creme de la creme, both of them, and as FTB?

If I earned this money I would want to live in Mayfair/Park Lane on the monopoly board of life, not Pentoville.

Bubbles by their nature skew thinking, so whilst I don't doubt there are people on this money, they MUST be in the minority. Isn't it likely that a lot of the 'money' we are seeing circulating now, is just paper wealth? What would be a symtom of that?

A lot of debt.

Bingo! Meaning that very few people actually earn this.

If two people earn 200k between them, then, yes they can afford to buy a house at 800k over 25 years. But they cannot afford to have children, or lose their jobs etc etc.

What a mess. The crash will be worse maybe than we think. The shout that 225k must be a gold bungalow is spot on. in 1999, you could get a very nice house for 225k, and no bungalows fell into this catergory.

[Marina]

Although I normally agree with you Marina, I couldn't disagree with you more on this one.

I am perplexed as to why house prices have risen so high, and maybe you have a point, but average salaries are around 25k.

For a couple to have combined incomes of 200k, then they would have to be the creme de la creme, both of them, and as FTB?

If I earned this money I would want to live in Mayfair/Park Lane on the monopoly board of life, not Pentoville.

Bubbles by their nature skew thinking, so whilst I don't doubt there are people on this money, they MUST be in the minority. Isn't it likely that a lot of the 'money' we are seeing circulating now, is just paper wealth? What would be a symtom of that?

A lot of debt.

Bingo! Meaning that very few people actually earn this.

If two people earn 200k between them, then, yes they can afford to buy a house at 800k over 25 years. But they cannot afford to have children, or lose their jobs etc etc.

What a mess. The crash will be worse maybe than we think. The shout that 225k must be a gold bungalow is spot on. in 1999, you could get a very nice house for 225k, and no bungalows fell into this catergory.

<{POST_SNAPBACK}>

As you know, I am as much of a bear as the next man. But I do think the simple fact that only x% of property is ever for sale at any one point in time means that the price of property will relate to the highest earners.

So the average salary is irrelevant. It would only be relevant if there was an infinite supply of property.

My comments are not meant as some sort of absolute comment on the market - but the plain fact that London property is out of reach of 80% of the population simply demonstrates that it is the earnings of the top 20% that govern the price of property - not the average earning.

Put in other factors - like the top 20% of earners don't want to live in unpleasant areas etc and you have the diverse property market. Move away from Streatham, Clapham and Chiswick etc and go to say Hayes in West London where I grew up. A different market completely and anyone earning Chiswick money is not going to live in Hayes. But even in Hayes the market is set by the top-earners that do decide to live there.

In the absence of a recession, the price of property, or rather the extent of falls, will be governed by the top 20% of earnings - not average earnings. (Plucked 20% out of the air - but some relatively small percentage).

[BoredTrainBuilder]

So the average salary is irrelevant. It would only be relevant if there was an infinite supply of property.

<{POST_SNAPBACK}>

Then the price would be zero so the size of the salary would be irrelevant.

[mhifoe]

Where I live is the same as Cornwall in that the windows of the recruitment agencies are full of jobs for 14k to 18k - above 20k seems to be quite rare. However, new build 2 bed flats go on the market for well over 200k (admittedly not selling now). How can this be? Simple. There are enough youngsters earning £40k and over who can afford the relatively limited supply of flats on the market at any one time.

<{POST_SNAPBACK}>

I disagree.

The £200k flats in Cornwall are not being bought by local people, they are being bought by people from the south east. They can afford this because their houses in the home counties are 'worth' £300k-£500k. I know this because my mother is planning to buy a £200k house in Cornwall by remortgaging her house in Hampshire (I have tried to stop her).

If house prices aren't going up, people can't MEW to buy more houses. When this happens, a 2 bed house in Cornwall will be worth what local people can afford, which is significantly less than £200k.

[RJG18]

I hate to be a prophet of doom but there is a fact about the housing market that does not often get taken into account here.

There is a lot of mention of 'average' wages and their relationship to house prices. But, take a town with 1000 houses in it.

Let's say at any point in time 50 of those houses are for sale and in any one week 5 of them get sold.

Let's say 60 people are looking at any one time (the 50 sellers plus 10 potential FTBs). In my example the house prices of the 50 on the market will always be related to the earnings of the highest earning 8.5% of the buyers - or, if one works on the basis prices are set by what FTBs can afford - and say that each one of the houses sold needed a FTB - then the prices would be set by the earnings of the highest earning half of the potential FTBs in the market.

This is the supply and demand bit of the housing market. Not that there is an absolute shortage of houses - but that, at any point, only a relatively small percentage of the total market is available to be purchased. At the moment the percentage seems to be historically high - so prices are falling - but they will only fall until people earning 'good' not 'average' money can afford them.

If the market depends on FTBs it will fall until it hits the affordability levels of the top earners amonst FTBs. Surely this is what keeps the London market so absurdly high? Houses in places like Streatham, Clapham and Chiswick (dumps pretty much when I was a child) worth say 800k are based on the fact there are enough couples in London with a joint income of 200k to make these affordable - but completely out of reach of the couple on 'average' wages of 25k (or whatever people think it is these days).

Where I live is the same as Cornwall in that the windows of the recruitment agencies are full of jobs for 14k to 18k - above 20k seems to be quite rare. However, new build 2 bed flats go on the market for well over 200k (admittedly not selling now). How can this be? Simple. There are enough youngsters earning £40k and over who can afford the relatively limited supply of flats on the market at any one time.

The only reason I believe in a HPC - as opposed to a mild correction - is that I think we have an economic storm ahead - recession at the least, possibly a slump. In this situation very few people will contemplate taking on further debt, the market will stagnate and forced sellers will have to take what they can get.

If we don't get the economic storm, then I think we will only have a mild correction in house prices - especially given the historically benign interest rate environment.

<{POST_SNAPBACK}>

No, think about what you are saying. It boils down to: "Because only a certain % of the total housing stock will be available for sale at any point in time, then demand will always be greater than supply, so only the wealthiest few % of potential buyers will buy."

This is not correct. You've assumed that there will always be more people willing and able to buy than there will be houses for sale. By "willing and able" I mean people who actively want to buy at the moment and can afford to. The current housing market is proof that your notion it wrong. There are currently far more houses on the market for sale than there are buyers willing and able to buy them. Hence the salary levels of EVERYONE currently looking to buy is what sets the real achievable price of a property, not just the salaries of the top few % of earners. Hence, price falls, back to a point of affordability, and almost certainly below this.

[RJG18]

.... just to extend my previous post further...

Marina, your post assumes the following state is always true in the housing market:

DEMAND > SUPPLY

...which is what leads to your false assumption. There are obviously three simple demand states of the market:

DEMAND > SUPPLY

DEMAND < SUPPLY

DEMAND = SUPPLY

...and actually, although mathmatically they are the same thing, in real world terms there are actually five states:

DEMAND > SUPPLY

DEMAND < SUPPLY

SUPPLY > DEMAND

SUPPLY < DEMAND

DEMAND = SUPPLY

As I said, although mathmatically DEMAND>SUPPLY and SUPPLY<DEMAND are the same thing, it can be useful to express them seperately, if you take one side of the statement to mean a normal value. I.e. "Demand being higher than the normal level of supply" is very different to "Supply being lower than the normal level of demand". Although both of these conditions would lead to price rises, they are very different things. As we've stated before, the media has incorrectly interpretted that the rising prices and the supply/demand inbalance was caused by a shortage of supply, and that more houses were required. This, as we know was incorrect. The situation was cause by and excess of DEMAND, not a shortage of SUPPLY, i.e. there are actually enough houses to go around, but speculators and bubble-chasers competed with eachother and FTB'ers, etc, to cause there to be more buyers in the market that available properties, hence prices rises. See the difference?

Back to Marinas point, the salary issue is best first understood by looking at the marfket scenario in which DEMAND=SUPPLY. In this case it is very simple. The bottom 25% of earners in the potential buyer pool MUST be able to afford the bottom 25% of properties (based on size, location, etc, etc). The next 25% of earners to afford the next 25% of properties, and so on. To a point where the top 25% of properties are affordable to the top 25% of earners.

Then, in the scenario where supply exceeds demand (i.e. the current market) you can see that all buyers have their choice of properties in their price brackets, so prices adjust accordingly until the DEMAND/SUPPLY condition balances again.

[Smell the Fear]

As you know, I am as much of a bear as the next man.

<{POST_SNAPBACK}>

Sorry, but I laughed out loud when I read that line, given the following definition of "bear" from the Gay Slang Dictionary.

4. [early1980s] hairy, men. a man, usually somewhat stouter than the average man, who is possessed of particularly more body hair than most men.

p.s. just sharing a joke, not being personal or intending to cause offence. To me it just read in an amusing way.

[Marina]

No, think about what you are saying.  It boils down to:  "Because only a certain % of the total housing stock will be available for sale at any point in time, then demand will always be greater than supply, so only the wealthiest few % of potential buyers will buy."

This is not correct.  You've assumed that there will always be more people willing and able to buy than there will be houses for sale.  By "willing and able" I mean people who actively want to buy at the moment and can afford to.  The current housing market is proof that your notion it wrong.  There are currently far more houses on the market for sale than there are buyers willing and able to buy them.  Hence the salary levels of EVERYONE currently looking to buy is what sets the real achievable price of a property, not just the salaries of the top few % of earners.  Hence, price falls, back to a point of affordability, and almost certainly below this.

<{POST_SNAPBACK}>

No, the current housing market proves I am right. Transaction volumes down - yes - but my point is that the market is set by a small percentage of high earners. Transaction volumes down a third - from a high where speculation was rife. Maybe now we are in a more normal market where people are just buying and selling their homes - as opposed to their investments.

Prices have fallen - a bit - but deals are still going through. Some FTBs must still be in the market to get chains started and they, one way or another, can afford the properties.

I never understand this notion that there are currently more houses on the market than buyers.

Mostly every seller is also a buyer - apart from executors sales and people leaving the country. And, there is an endless supply of young people wanting to buy their first property.

What is true is that there are not enough people in the market at the moment to sustain price rises. But big price falls? Only if things get a lot worse in the economy.

[Gavin]

Why can't you understand the concept of more sellers than buyers?

If everyone simply bought one house and sold one house in a perfect exchange then prices would be stable and no chain would ever end!

More buyers than sellers can easily occur when an owner occupier suddenly decides to additionally become a landlord and goes into the market for a BTL.

Likewise when yields are low and capital appreciation means that BTL is an illogical/irrational investment vehicle, then landlords will add to supply by selling without a corresponding purchase.

Add in the baby boomer skew, with different demographics and more 60 year olds than 20 year olds (aging population I think its coined) and voila, massive relative amounts for sale.

When I STR'd I am a classic example of increasing supply without demand.

Building new houses is the exact opposite.

[Marina]

Why can't you understand the concept of more sellers than buyers? I am not stupid. I can understand the concept - I just don't think there is a massive imbalance.

If everyone simply bought one house and sold one house in a perfect exchange then prices would be stable  and no chain would ever end!

In a chain of five houses there are five sellers and five buyers. The seller at the top is getting out - the buyer at the bottom is new.

More buyers than sellers can easily occur when an owner occupier suddenly decides to additionally become a landlord and goes into the market for a BTL. Yes - that is what drove prices up. Your point?

Likewise when yields are low and capital appreciation means that BTL is an illogical/irrational investment vehicle, then landlords will add to supply by selling without a corresponding purchase. Yes that is what will drive prices down - to a marginal extent.

Add in the baby boomer skew, with different demographics and more 60 year olds than 20 year olds (aging population I think its coined) and voila, massive relative amounts for sale. Every time I see a For Sale sign I think - look someone selling and, probably that same person buying.

When I STR'd I am a classic example of increasing supply without demand. And when you buy again you will be the opposite.

Building new houses is the exact opposite.

<{POST_SNAPBACK}>

[/color]

None of which has got anything to do with my point that the price of property, due to there only ever been a small percentage of the total stock available for purchase at any one time, is set by the ability of the highest earning potential FTBs. It has very little to do with the relationship between average salaries and supply and demand.

[Gavin]

How can you agree that more BTL coming onto the market has increased demand and therefore the prices and not understand how there can be an imbalance between the numbers of buyers and sellers?

You post makes no sense.

Yes when I buy again I will add to demand just as I added to supply before, but there is a significant time lag involved.

The market struggles to find the correct price and BTL's have forced up prices, now their returns are poor and many or most will leave the market forcing prices down.

Only when prices fall will I think about buying again, meaning the market is a new one. If prices stay here then I will not buy, and whilst renting is cheaper than buying then I will do very well out of it.

I can't understand quite what you are saying. Yes I agree that only the highest earners can buy in THIS market, but they are of course the minority, and they will be buying less size/quality properties than would have been possible 5 years ago. Thats why I think this market is fundamentally imbalanced and have chosen to sell and not re-buy under the current conditions.

If I tried to sell a 10 year old fiesta for 10k, then there would be people who could afford it, but none willing to pay it. I would eventually have to cut the cost to a more reasonable level to shift it. Same with houses whether we can live in them or not.

[twinkle]

If the market depends on FTBs it will fall until it hits the affordability levels of the top earners amonst FTBs. Surely this is what keeps the London market so absurdly high? Houses in places like Streatham, Clapham and Chiswick (dumps pretty much when I was a child) worth say 800k are based on the fact there are enough couples in London with a joint income of 200k to make these affordable - but completely out of reach of the couple on 'average' wages of 25k (or whatever people think it is these days).

Where I live is the same as Cornwall in that the windows of the recruitment agencies are full of jobs for 14k to 18k - above 20k seems to be quite rare. However, new build 2 bed flats go on the market for well over 200k (admittedly not selling now). How can this be? Simple. There are enough youngsters earning £40k and over who can afford the relatively limited supply of flats on the market at any one time.

<{POST_SNAPBACK}>

A minor point - but how many "youngsters" earn £40K? I don't know anyone who earns that kind of money and that includes my generation of graduates that left 8 years ago and all my other friends up to the age of 45 or so. If you do earn £40K, would you really want to be stuck in a 2 bed flat (regardless of it's "executive" marketing label), unless it's a fabulous penthouse suite in central London?

Furthermore, how many Londoners actually earn £100K? What percentage of FTB earn these amounts? I get fed up with reading about this so called high earners on this site when I don't know anybody that actually earns these huges amounts.

[pescouk]

A minor point - but how many "youngsters" earn £40K?  I don't know anyone who earns that kind of money and that includes my generation of graduates that left 8 years ago and all my other friends up to the age of 45 or so.  If you do earn £40K, would you really want to be stuck in a 2 bed flat (regardless of it's "executive" marketing label), unless it's a fabulous penthouse suite in central London?

Furthermore, how many Londoners actually earn £100K?  What percentage of FTB earn these amounts?  I get fed up with reading about this so called high earners on this site when I don't know anybody that actually earns these huges amounts.

<{POST_SNAPBACK}>

Hi just to add I work in IT recruitment and there are many many IT people aged 25-35 earning £500 per day. I know them and have placed them in jobs. They also pay less tax as they work as private companies although really they are just temps - they only pay 20% tax on this. They are out there.

Also I I currently earn £70K per annum and I am 26 next week.

Edited August 23, 2005 by pescouk

[fdk]

Hi just to add I work in IT recruitment and there are many many IT people aged 25-35 earning £500 per day. I know them and have placed them in jobs. They also pay less tax as they work as private companies although really they are just temps - they only pay 20% tax on this. They are out there.

Also I I currently earn £70K per annum and I am 26 next week.

<{POST_SNAPBACK}>

Have you bought a house yet ?

[Ignorant Steve]

A minor point - but how many "youngsters" earn £40K?  I don't know anyone who earns that kind of money and that includes my generation of graduates that left 8 years ago and all my other friends up to the age of 45 or so.  If you do earn £40K, would you really want to be stuck in a 2 bed flat (regardless of it's "executive" marketing label), unless it's a fabulous penthouse suite in central London?

Furthermore, how many Londoners actually earn £100K?  What percentage of FTB earn these amounts?  I get fed up with reading about this so called high earners on this site when I don't know anybody that actually earns these huges amounts.

<{POST_SNAPBACK}>

You don't think that all your "friends" are taking pity on your dismal failure to earn a decent crust and are adjusting down their salaries out of pity?

No? OK!

Loads of professions earn more than £40K, most skilled workers with overtime earn more than £40K.

[pescouk]

Have you bought a house yet ?

<{POST_SNAPBACK}>

I wouldnt dream of it at the moment. I still live at mummies!!! Although to be fair she lives out of the country. I have £30K for a deposit also sitting a a high interest account and i add to that regularly ie. monthly around £1-3K dependant on spendings.

I dont buy at house becuase a) i think they are over priced

and

I am realistic - i am in a sales job and tomorrow might not be as bright. I can be sacked if I have a bad run and there are a million more graduates to take my place.

[Leodhasach]

Hi just to add I work in IT recruitment and there are many many IT people aged 25-35 earning £500 per day. I know them and have placed them in jobs. They also pay less tax as they work as private companies although really they are just temps - they only pay 20% tax on this. They are out there.

Also I I currently earn £70K per annum and I am 26 next week.

<{POST_SNAPBACK}>

That's all true, but getting a mortgage when you're a contactor doing temp jobs isn't always straightforward. My brother still turns a pretty penny as a contract programmer or whatever he's called, but says the whole thing peaked about 4 years ago, and contracts are haemoraging to India etc. He has to actively seek out work now, whereas before he was snowed under.

£500 a day is not chicken feed, but big bro was on upwards on £100 per hour at one point!

Incidentally, his house has been on the market in the W.End of Glasgow for 3 months now...