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Halifax House Price Charts

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On a fairly regular basis I post a couple of charts relating to the Halifax house price index, and last month a couple of members requested that I create a dedicated thread for these – so here it is.

The first one shows the house price/earnings ratio. Last month I gave an explanation for the various info on this and it would have been useful if I could just cut-and-paste that description here. Unfortunately the board’s software doesn’t appear to be showing past posts at present.

Anyway, here’s the updated chart for September 2010:

HalifaxPERatio0910.gif

The p/e ratio is calculated by Halifax as the seasonally-adjusted average UK house price divided by the national average earnings of full-time males. Obviously one can argue whether the earnings metric is a good one to use for this calculation, but the point is that Halifax have used this consistently with their series over time so it does give the p/e ratio usefulness for comparative purposes .

Below the chart are some spreadsheet values. These show what the average house price would be if we returned to various past p/e yardsticks – the long-term average (mean), the long-term median, and the low of the last crash. Two additional columns show the percentage fall from the present average price to reach those yardsticks, and the percentage fall from the August 2007 nominal peak.

The peak p/e ratio was 5.82 in April 2007. Currently it stands at 4.56.

-----

The second chart shows the fall from the peak price of the boom, adjusted by the retail price index – in other words an attempt to graph the decline in the average house price in real terms.

In the 1989 crash the peak-to-trough decline in prices was 33.4%, and it took 76 months to play out.

Normally I will be updating this chart a couple of weeks after the Halifax index is released because I can then use the latest published RPI index. In the past I have always estimated this. However today I’m putting up a provisional chart because the heavy fall in September’s Halifax index has led to a significant event – even if we assume that the RPI index is unchanged for September, we have now breached the previous low on this chart which was made back in April 2009 (-24.0%). The provisional fall (until we have the exact RPI figure) is currently 25%.

HPC0910.gif

Empirically the average peak-to-trough correction in housing markets in the aftermath of a banking crisis takes 6 years to play out and results in an inflation-adjusted reduction in prices of 35.5% (Reinhart/Rogoff 2007). I stress this is an average however.

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Great work. Specially love that 2nd chart. Puts things into perspective for us - house prices are continuing to fall in real terms (even if perhaps not compared to most of our incomes). After many years of renting I'm looking to buy in about a year's time. I may too early to catch the bottom - that's fine. I can wait for that to trade up, another few years down the line.

Edited by Van

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Empirically the average peak-to-trough correction in housing markets in the aftermath of a banking crisis takes 6 years to play out and results in an inflation-adjusted reduction in prices of 35.5% (Reinhart/Rogoff 2007). I stress this is an average however.

I read this morning, sorry can't remember where, that bubbles tend to take as long to deflate as to inflate. The graph on hpc home page seems to confirm this. This bubble took about eleven years to inflate, so I expect it will take about eleven years to deflate also.

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Great stuff

I wonder how much overshoot we will see on the way down ?

Is there any evidence whether it is likely to match the overshoot in the boom on the way up (US and Irish evidence suggests it might as do the figures from House Price Crash 1 in the 1990s) ?

Edited by realcrookswearsuits

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Great work. Specially love that 2nd chart. Puts things into perspective for us - house prices are continuing to fall in real terms (even if perhaps not compared to most of our incomes).

I hate that 2nd chart! It tells us most of the fall is behind us, there's only a 10% real fall left to go, and that's over three years, so no fall at all in nominal prices. That chart just screams you're never going to be able to afford a house at me.

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I hate that 2nd chart! It tells us most of the fall is behind us, there's only a 10% real fall left to go, and that's over three years, so no fall at all in nominal prices. That chart just screams you're never going to be able to afford a house at me.

I think you will find that George Osbournes public spending cuts may well fix that for you.

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Excellent work. So another 3 years or so to go.

Kyle Bass comes to the same conclusion towards the end of this video:

[shameless plug for my post]

http://www.housepricecrash.co.uk/forum/index.php?showtopic=152359

[/shameless plug for my post]

In the US of course it started in 2007 but he says maybe you won't see falls because of general inflation.

We've got perhaps a couple more years of falls tops, before inflation holds nominal prices steady.

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I hate that 2nd chart! It tells us most of the fall is behind us, there's only a 10% real fall left to go, and that's over three years, so no fall at all in nominal prices. That chart just screams you're never going to be able to afford a house at me.

No, it should fall by more than the last crash - remember this time the bubble was bigger.

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how can average earnings be 35k when the top 5% are above 44K?

Read OP's text- it is the avg earnings of a full-time employed male. Apparently.

Whether or not it is an accurate reflection (remember, this is the Halifax index - a reflection of their loan book, nothing more) is neither here nor there, as this is the measure they have used historically so it give a consistent measure.

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Read OP's text- it is the avg earnings of a full-time employed male. Apparently.

Whether or not it is an accurate reflection (remember, this is the Halifax index - a reflection of their loan book, nothing more) is neither here nor there, as this is the measure they have used historically so it give a consistent measure.

I did read it.

I realise its the Halifax figure.

Obfuscated by them of course.

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5% earn 45k, 90% earn 35k and 5% earn 25k...would be one way.

OK...yar!

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OK...yar!

Or somewhat more realistically... (maybe)

4% at 100k

1% at 45k

20% at 40k

20% at 35k

25% at 30k

30% at 25k

Gives 5% over 44k, Mean(Average) of 34.45k, Median of 30k

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Actually I don't know where they get their figures from, either. According the the NSO the pay of the average full time employed male ~28k:

http://www.statistics.gov.uk/pdfdir/ashe1109.pdf

I think their 34k figure refers to a 35year old full time male (pretty much the peak earning age). I can assure you that 162k is not "peak property" price, lol. Still a long way to fall, then.

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These are the numbers from the ONS ASHE 2009:

ftmearnings2009.gif

Spreadsheet available through links from this PDF file:

http://www.statistics.gov.uk/downloads/theme_labour/ASHE-2009/2009_all_employees.pdf

Says a lot for 5% at £44K then or do only 25% of the male population work full time and no women earn over £44K?

I meant that only a quarter of working age men worked full time, honest.

Edited by daiking

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Says a lot for 5% at £44K then or do only 25% of the male population work full time and no women earn over £44K?

Well I know Majorie Scardino does...one of the handful of women earning in the ~1 million range. ;)

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Read OP's text- it is the avg earnings of a full-time employed male. Apparently.

Whether or not it is an accurate reflection (remember, this is the Halifax index - a reflection of their loan book, nothing more) is neither here nor there, as this is the measure they have used historically so it give a consistent measure.

I think that it is based on ONS figures [edit - I see people have now shown this]. If it is based on the earnings of their loan book it would have introduced a serious bias as property became ever more out of reach to those on low incomes.

Of course it is only the mean that is 35k - the mean is 28k.

This figure would also have introduced a bias towards understating the costs of housing because over the last 20 years there has been a trend towards very high renumeration at the tiny top end of the scale, which pulls the mean away from the median.

However average house prices should be little affected by the small elite unless they have sunk their wealth into btl. I would prefer a graph based on median earnings....any volunteers?

Edited by mirage

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  • 238 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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