Are House Prices As A Percentage Of Income Lnextricably Set-

[Guest KingCharles1st]

This is what I don't get through all the pages of arguments re inflation vs. deflation etc trotted out over and over again on the pages of HPC.

It seems to me, that there are a few ways this ratio could change.

- Wages remain constant- yet house prices drop- this is the scenario we all want- but what triggers could force this change in hp/income ratio to actually happen- the only way I see this is with a huge increase in one/many vitally important consumer staples- of whatever nature- yet still operating in a framework where the employee's income is secure, and externally supplied credit is no longer an option.

- HP drops through floor because nobody wants to buy or rent dwellings (at current hp/income ratio) anymore through either gargantuan oversupply, or some other unidentified reason.

- I'm already struggling... any other scenario's?

So regardless of the inflation/deflation viewpoints- will we ever see a change in system whereby HP/rent expands to fill any available gap in the monthly budget for many many low medium earners?

[Bloo Loo]

lending is what supports housing prices.

[expatowner]

lending is what supports housing prices.

that and greed

[Bloo Loo]

that and greed

true...greed on the bankers, and fear on the buyers.

perfect storm.

[Stars]

So regardless of the inflation/deflation viewpoints- will we ever see a change in system whereby HP/rent expands to fill any available gap in the monthly budget for many many low medium earners?

Unless you make more fundamental changes than fiddling with money supply / interest rates you still have the economic equivalent of a hamster wheel dominating most people's lives and choices. Without some drastic reform we will just produce variations of the same problem

[matroskin]

lending Support for Mortgage Interest/SMI is what supports UK housing prices.

Corrected for You. UK lending has fallen off a cliff long time ago but HMG stepped in and handed out SMI at artificially high 6% so that unlucky HO/hard-working families can stay in their homes.

Now SMI has run out of money in Wales/running out of money in other parts of this country we can expect proper HPI to resume.

[Bloo Loo]

Corrected for You. UK lending has fallen off a cliff long time ago but HMG stepped in and handed out SMI at artificially high 6% so that unlucky HO/hard-working families can stay in their homes.

Now SMI has run out of money in Wales/running out of money in other parts of this country we can expect proper HPI to resume.

Agree.

government interference turns grey what is a black and white argument.

[Pent Up]

lending is what supports housing prices.

Yep can't borrow, can't buy. And it's pretty hard to borrow at the moment, let's just hope they don't return the lending of pre 2007 and we never return to HPI of pre 2007. ( for a

long long time)

[Stars]

Yep can't borrow, can't buy. And it's pretty hard to borrow at the moment, let's just hope they don't return the lending of pre 2007 and we never return to HPI of pre 2007. ( for a

long long time)

Isnt the main problem with high prices that people cant buy accommodation?

Edited June 10, 2010 by Stars

[Guest KingCharles1st]

Isn’t the main problem with high prices that people can’t buy accommodation?

Or more importantly, find it exceptionally difficult to buy an acre of otherwise rubbish land on which they can get planning and build their own dwelling.

[plummet expert]

Yep can't borrow, can't buy. And it's pretty hard to borrow at the moment, let's just hope they don't return the lending of pre 2007 and we never return to HPI of pre 2007. ( for a

long long time)

Proper bank regulation is a key factor. We should really all press for these to be implemented. Brown undid most of it! You should not be able to borrow more than 3x income etc, nor should there ever be 100% mortgages. Then homes would largely match incomes and over or undershoot of the trend would be more contained and less able to be a boom and bust situation. House ALWAYS return to the trend throughout history. Homes should not be seen as a primary investment, but a place to live.

As interest rates go up (which they are despite BoE base) those with a 5 x or 6 x mortgage will default first, then others who lose jobs etc.

[Bloo Loo]

Isn’t the main problem with high prices that people can’t buy accommodation?

well, I thought the main problem was bank failure....but ho hum.

[Stars]

Or more importantly, find it exceptionally difficult to buy an acre of otherwise rubbish land on which they can get planning and build their own dwelling.

Which succinctly goes to the nub of the market issue.

The housing market doesn't work like other markets because there is a fixed supply which acts to control (lock out) what would be in any other market, normal competition.

[Timm]

Corrected for You. UK lending has fallen off a cliff long time ago but HMG stepped in and handed out SMI at artificially high 6% so that unlucky HO/hard-working families can stay in their homes.

Now SMI has run out of money in Wales/running out of money in other parts of this country we can expect proper HPI to resume.

That's interesting.

Do you have a link?

[Pent Up]

Proper bank regulation is a key factor. We should really all press for these to be implemented. Brown undid most of it! You should not be able to borrow more than 3x income etc, nor should there ever be 100% mortgages. Then homes would largely match incomes and over or undershoot of the trend would be more contained and less able to be a boom and bust situation. House ALWAYS return to the trend throughout history. Homes should not be seen as a primary investment, but a place to live.

As interest rates go up (which they are despite BoE base) those with a 5 x or 6 x mortgage will default first, then others who lose jobs etc.

+1

[Bloo Loo]

Which succinctly goes to the nub of the market issue.

The housing market doesn't work like other markets because there is a fixed supply which acts to control (lock out) what would be in any other market, normal competition.

of course, bankers have nothing whatsoever to do with pricing.

[grizzly bear]

- HP drops through floor because nobody wants to buy or rent dwellings (at current hp/income ratio) anymore through either gargantuan oversupply, or some other unidentified reason.

I think what happens is not enough people can afford to or want to buy dwellings at there current prices (ratio) anymore as they just can't borrow the money, and it would e cheaper to rent instead. Those who actually want to sell to the fewer sellers who can afford are forced to reduce the prices to appeal to the fewer buyers, and slowly prices come down. At the same time some of the props that are keeping the market up gradually fall away - eg no more money for shared ownership, gov paying mortgages, banks have less cash, people loose jobs, mortgage rates rise due to lack of funds.

eg both my SILs trying to sell in NW London. Both have reduced prices, neither have sold yet, but neither wants to reduce their price further just yet.

I guess eventually they'll get a low ball offer and have to decide what to do? Or maybe they'll be lucky and someone will pay the asking price.

My brother is looking to buy similar to what SIL is selling but he can't afford £535k for tiny 3 bed semi but if it was priced at the 2004 price they paid he would be able to afford it ONLY if his flat didn't fall by the same % !!!!

[Stars]

of course, bankers have nothing whatsoever to do with pricing.

Of course banks are involved, as are builders, plumbers, surveyers and hairdressers.

I just don't think shouting 'BANKS!' in answer to every question helps to unravel the problem much

[Bloo Loo]

Of course banks are involved, as are builders, plumbers, surveyers and hairdressers.

I just don't think shouting 'BANKS!' in answer to every question helps to unravel the problem much

I dont see you unravelling anything...just bypassing the true cause of high prices....bankers lending 10 times salary.

[Orbital]

I've always noticed people get it very wrong when it comes to thinking in %s.

Remember x % of a big number is bigger than x % of a small number. Yet many seem to think x% always = x%?!

It seems to be something that is drilled into us from a very young age?

My mortgage as a % of my income would make many (most?) people here say I'm mad. Yet I've always had plenty left over to meet my needs. And no, I am a long way off the top of the food chain!

[Bloo Loo]

I've always noticed people get it very wrong when it comes to thinking in %s.

Remember x % of a big number is bigger than x % of a small number. Yet many seem to think x% always = x%?!

It seems to be something that is drilled into us from a very young age?

My mortgage as a % of my income would make many (most?) people here say I'm mad. Yet I've always had plenty left over to meet my needs. And no, I am a long way off the top of the food chain!

lets hope rates dont rise for your mortgage.

[grizzly bear]

I've always noticed people get it very wrong when it comes to thinking in %s.

Remember x % of a big number is bigger than x % of a small number. Yet many seem to think x% always = x%?!

It seems to be something that is drilled into us from a very young age?

My mortgage as a % of my income would make many (most?) people here say I'm mad. Yet I've always had plenty left over to meet my needs. And no, I am a long way off the top of the food chain!

do you have kids? clearly someone single could afford a much high % of their income on housing that those with children.

5x income would be fine for a well paid single professional, but 5x joint income would not be good for a couple with childcare and other costs relating to the children.

[Stars]

I dont see you unravelling anything...just bypassing the true cause of high prices....bankers lending 10 times salary.

More mindless flinching

"The banks lend money", is not an explanation for the entire economy being rolled into the price of real estate. It is part of the process, but it isn't an explanation

Edited June 10, 2010 by Stars

[abharrisson]

Proper bank regulation is a key factor. We should really all press for these to be implemented. Brown undid most of it! You should not be able to borrow more than 3x income etc, nor should there ever be 100% mortgages. Then homes would largely match incomes and over or undershoot of the trend would be more contained and less able to be a boom and bust situation. House ALWAYS return to the trend throughout history. Homes should not be seen as a primary investment, but a place to live.

As interest rates go up (which they are despite BoE base) those with a 5 x or 6 x mortgage will default first, then others who lose jobs etc.

In outline I don't disagree with this.. but lets also remeber in the arly nineties when we were still firmly in 3 times highest income plus once lowest we saw a far larger level of repossessions than now so having a 3 times dictat doesn't save you... its a question of degrees.

Whatever the rights and wrongs are I think we have moved to a more felxible system now where 5 times sinlg might be right for some, 3 times joint might be right for others and no mortgage offer at all ( even with a clean credit record might be right for others) at the lower end I really think that the costs of owning a home ( replacement of items, repairs, insurance etc etc ) are too great to offer any low earners a mortgage, even at a low level. I think we are begining to see banks recognising this.

so sure its obvious logic to say the less you borrow the less likely you are to get caught out but theres no magic effect to three times mantra...and we have equally seen that even in a worse recessionary environment the actions of bansk and the govt can reduce the need fo repossessions etc.

I don't think we'll ever see affordability assessments going away now and nor do I think we'll ever see assessment of household income going away.