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Cat Herder

Telegraph - Why House Prices Must Fall By 28 Per Cent

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Good to see this in the mainstream media......

"A trivial increase in house prices this month has prompted speculation that the market may be stalling but prices would have to fall by 28 per cent from their current level to become affordable for first-time buyers.

Nationwide, Britain’s biggest building society, calculates that average house prices edged up by 0.1 per cent in June to stand about 3 per cent higher than they did at the start of the year. While the headline figure attracts most attention, Nationwide also measures affordability by measuring house prices as a multiple of gross or pre-tax earnings.

On that basis, housing remains far more expensive than the long term average. For example, Nationwide’s first-time buyers’ price/earnings ratio increased from 4.4 in the first quarter of this year to 4.6 in the second quarter.

In other words, the average first-time buyer now needs 4.4 years’ income before tax to buy the average first-time buyer’s home. That’s a tall order. To see just how steep it is, compare that figure with Nationwide’s average price/earnings ratio over more than the last quarter of a century of just 3.3.

So, by this measure of housing affordability, prices would have to fall by 28 per cent from the their current level to reach the long term average since 1983 for first-time buyers. While homeowners may be dismayed at the prospect of a major asset losing more than a quarter of its value, younger people might more reasonably regard such a reversion to the mean as a chance for them to escape from rented accommodation – and a good reason not to rush to buy now.

Any or all of three main factors could precipitate such a large change in house prices. Higher interest rates – now regarded as a question of ‘when’, rather than ‘if’; higher unemployment – ditto; and reduced mortgage availability; already a fact.

With inflation running well above Bank of England targets, however it is measured, and the coalition government determined to cut spending to reduce deficits, the only real question is whether higher interest rates or rising unemployment will be first to burst the housing bubble.

Housing analyst John Wriglesworth of the Wriglesworth Consultancy said: “First-time buyers who decide to proceed at present face a double difficulty of having to find higher income multiples than have been regarded as reasonably affordable in the past and being required to produce higher deposits if they want to fulfill their housing aspirations.”

As pointed out in this space before, it might be wiser for prospective first-time buyers to wait before they buy and save a bigger deposit while prices fall."

http://blogs.telegraph.co.uk/finance/ianmcowie/100006757/why-house-prices-must-fall-by-28-per-cent/

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  • 152 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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