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Breaking: " Why House Prices Could Fall By Another 20 Per Cent "

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http://blogs.telegraph.co.uk/finance/ianmcowie/100008832/you-aint-seen-nothing-yet-why-house-prices-could-fall-by-another-20-per-cent/

You ain't seen nothing yet: why house prices could fall by another 20 per cent
By Ian Cowie Your Money Last updated: December 1st, 2010
10 Comments Comment on this article
House prices may revert to their long-term average affordability (Photo: PA)
House prices would have to fall by more than a fifth from their current level to revert to their long-term average affordability of four years’ average earnings. Even after the modest reductions announced by Nationwide Building Society today, the typical house price equals more than five years’ earnings.

I am afraid I have to agree.

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I am afraid I have to agree.

Sorry but I don't.

Isn't the 'average' wage supposed to be about £25k so at 4x the 'average' house would then be 100k?.

Plus a correction will almost certainly undershoot the average.

I expect more like 35% from here :D

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Since when did a house cost 4x earnings. Historically, it used to be 3x for a single earner, 3.5 times for a working couple. Maybe in London it has been 4x, but elsewhere?

Agree with poster above who questions a house costing > £100K if this 4x was true. Maybe the journo didn't want to spook the sheeple, so slipped in some bad maths ;)

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Sorry but I don't.

Isn't the 'average' wage supposed to be about £25k so at 4x the 'average' house would then be 100k?.

Plus a correction will almost certainly undershoot the average.

I expect more like 35% from here :D

Hmmmm. Have to think about that for a bit.

I just thought about it and I think you are partly right. Probably 40% down.

The EU troubles MUST spill over to us and the effects will bring the bloated housing market down --its already started when you consisder we have had 5 or 6 months in a row down. Slow start but it will pick up as exports drop due to EU issues.

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I just thought about it and I think you are partly right. Probably 40% down.

I would suggest the 'average' going with an 'average' wage of 25k would be more like 125k, would it not? Assuming a deposit of 20%.

So, from 164k, only a 24% correction is required, possibly more to account for an overshoot.

Do you agree?

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I would suggest the 'average' going with an 'average' wage of 25k would be more like 125k, would it not? Assuming a deposit of 20%.

So, from 164k, only a 24% correction is required, possibly more to account for an overshoot.

Depends where you live, in Northamptonshire the average house is 10x the average Northants income... that's quite the adjustment due.

Here avg salary is £22,100. The average house is £232,000

They would have to drop to £140,000 to be 3.5x earnings (even with a 25% deposit).. which is a drop of 39%

Edited by exiges

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Since when did a house cost 4x earnings. Historically, it used to be 3x for a single earner, 3.5 times for a working couple. Maybe in London it has been 4x, but elsewhere?

Agree with poster above who questions a house costing > £100K if this 4x was true. Maybe the journo didn't want to spook the sheeple, so slipped in some bad maths ;)

I seem to remeber in the mid-80s 2.5-3x mortgages were the norm, 3.25-3.5 was available from a few lenders at higher rates. Back then there were many small local lenders who had a better idea of the local house values and wages.

With a sensible deposit on top of the mortgage the average price was about 3-3.5x. I wasn't going to argue about the 4x assumption as even with that we would see a 35%+ drop.

My own long term target is £90k though - if the printy continues - measured in what I don't know.

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Sorry but I don't.

Isn't the 'average' wage supposed to be about £25k so at 4x the 'average' house would then be 100k?.

Plus a correction will almost certainly undershoot the average.

I expect more like 35% from here :D

Much as I would love you to be right I would be surprised if it worked out like that in nominal terms

There is no particular reason why one wage earner should be able to afford to buy an average house

The two things that have changed since the price multiples that you are all quoting based on averages from the 1950s to now are:

1) womens' participation in the workforce has increased from the 1950s to today

2) income and wealth inequality in the UK has been increasing dramatically from the 1970s to the present situation (not sure about income inequality now vs 50s/60s)

Therefore long term averages that held based on historic periods aren't necessarily that helpful for the future

(I accept that there are other factors, eg. higher levels of debt on entering the workforce, different taxation levels and tax reliefs, etc.)

You will probably get to see at least a 20% reduction in real terms over the next 5 years (say) but a lot of it will be hidden by inflation over that time period

This will be mainly driven by lower availability and higher margins on mortgages, rather than anything else, as competition in the UK mortgage market has reduced dramatically because of foreign banks leaving in the market, lenders going bust/merging and overseas wholesale financing for the remaining banks evaporating

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I think houses in the South-East will take a 20-25% haircut but I suspect there will be blood-bath in places like Devon and Cornwall. I've a feeling rich Londoners will dump their rural weekend pads so they can secure their main residences. This correction might just take everyone by surprise. I believe people underestimate how much public spending has propped up this false market. It will be painful which is no bad thing. :D

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........ things that have changed since the price multiples that you are all quoting based on averages from the 1950s to now are:

Tax credits: the biggest game changer at the bottom end of the market and major distortion that skews the long term ratios.

Edited by Caveat Mortgagor

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Journalists and pundits will always glaze over the realities facing Britain, especially when it comes to the short half-life of the property.

We are, as a nation:

1. Facing a demographic crisis

2. Running out of indiginous energy

3. Losing global poltical and military influence

4. Suffering the downside of globalism

5. Living unsustainable lifestyles

6. No longer living under the veil of our supposed pseudo-democracy

What can I say. Things aren't going to get better in my lifetime.

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Tax credits: the biggest game changer at the bottom end of the market and skew the long term ratio's

Please explain?

I've had nothing from the government since university except bad dentistry and bills...

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I've always thought: without higher interest rates then prices will just drift back to the long term average over the next 3-4 years, which is another 20%-25% fall in real terms.

If rates have to rise even by a couple of notches then we will get acceleration on the way down and some sort of overshoot.

If rates have to rise anywhere near +ve real rates then it will be a bloodbath.

Edited by Van

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Journalists and pundits will always glaze over the realities facing Britain, especially when it comes to the short half-life of the property.

We are, as a nation:

1. Facing a demographic crisis

2. Running out of indiginous energy

3. Losing global poltical and military influence

4. Suffering the downside of globalism

5. Living unsustainable lifestyles

6. No longer living under the veil of our supposed pseudo-democracy

What can I say. Things aren't going to get better in my lifetime.

agreed, no journo will talk reality until it hits, there will just be a slow slide into madness and depression for many in the UK.

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Much as I would love you to be right I would be surprised if it worked out like that in nominal terms

There is no particular reason why one wage earner should be able to afford to buy an average house

The two things that have changed since the price multiples that you are all quoting based on averages from the 1950s to now are:

1) womens' participation in the workforce has increased from the 1950s to today

2) income and wealth inequality in the UK has been increasing dramatically from the 1970s to the present situation (not sure about income inequality now vs 50s/60s)

Therefore long term averages that held based on historic periods aren't necessarily that helpful for the future

(I accept that there are other factors, eg. higher levels of debt on entering the workforce, different taxation levels and tax reliefs, etc.)

You will probably get to see at least a 20% reduction in real terms over the next 5 years (say) but a lot of it will be hidden by inflation over that time period

This will be mainly driven by lower availability and higher margins on mortgages, rather than anything else, as competition in the UK mortgage market has reduced dramatically because of foreign banks leaving in the market, lenders going bust/merging and overseas wholesale financing for the remaining banks evaporating

CPI/RPI inflation. Possibly.

Not wage inflation. At least in the 50s/60s/70s there was organised labour and pay rises above inflation for even the low paid was expected.

These days? Nah.

The average Joe is going to have less money in his pocket just trying to put the same food on the table and taking the same 2 week holiday in the sun. It will take him an age just to raise the 20% deposit.

Either the price falls to meet his ability to purchase or there is no sale.

The town where my parents live in Scotland is a wasteland. Average earnings are under £20k pa. (*) Maybe nearer 15k pa. But 3 bed houses still get touted for £150K-£200k. People still dream of the 2007/06 highs and free money. It's over.

(*) And 2 wage earners in a single household is a luxury. There just aren't enough jobs in the local economy to give everyone a job.

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Please explain?

I've had nothing from the government since university except bad dentistry and bills...

You didnt, but others who did recieve big piles of cash drove prices through the roof.

Working tax credit kicked off in April 2003. House prices had increased 50% over the previous 2 and a bit years. Such a massive increase sounds unsustainable, but sustain it they did.

16% increase in prices throughout 2003, 15% increase in 2004.......

This could (and should) have run out of steam and corrected itself. But Gordon did the right thing and re-distributed a load of cash to buyers at the bottom end, who drove prices up from the bottom of the market and allowed the boom to continue and Kirsty and Phil lived happily ever after!

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CPI/RPI inflation. Possibly.

Not wage inflation. At least in the 50s/60s/70s there was organised labour and pay rises above inflation for even the low paid was expected.

These days? Nah.

The average Joe is going to have less money in his pocket just trying to put the same food on the table and taking the same 2 week holiday in the sun. It will take him an age just to raise the 20% deposit.

Either the price falls to meet his ability to purchase or there is no sale.

The town where my parents live in Scotland is a wasteland. Average earnings are under £20k pa. (*) Maybe nearer 15k pa. But 3 bed houses still get touted for £150K-£200k. People still dream of the 2007/06 highs and free money. It's over.

(*) And 2 wage earners in a single household is a luxury. There just aren't enough jobs in the local economy to give everyone a job.

and that is repeated up and down the land. Free money from bricks no workey no more, sorry sheeple.

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CPI/RPI inflation. Possibly.

Not wage inflation. At least in the 50s/60s/70s there was organised labour and pay rises above inflation for even the low paid was expected.

These days? Nah.

The average Joe is going to have less money in his pocket just trying to put the same food on the table and taking the same 2 week holiday in the sun. It will take him an age just to raise the 20% deposit.

Either the price falls to meet his ability to purchase or there is no sale.

The town where my parents live in Scotland is a wasteland. Average earnings are under £20k pa. (*) Maybe nearer 15k pa. But 3 bed houses still get touted for £150K-£200k. People still dream of the 2007/06 highs and free money. It's over.

(*) And 2 wage earners in a single household is a luxury. There just aren't enough jobs in the local economy to give everyone a job.

If average Joe wants to buy a house he will have to go without his two weeks in the sun, a new car, new electronic toys and keep his job for five or more years for the chance to beg his bank/local building for a mortgage in the future IMHO

At least where I live there are plenty of jobs....its just the Poles took them...but thats another story...

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I've always thought: without higher interest rates then prices will just drift back to the long term average over the next 3-4 years, which is another 20%-25% fall in real terms.

If rates have to rise even by a couple of notches then we will get acceleration on the way down and some sort of overshoot.

If rates have to rise anywhere near +ve real rates then it will be a bloodbath.

Without strong inflation I can't see interest rates rising

Without wage growth I can't see strong inflation

With job creation weak and employees fearful I can't see wage growth

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Without strong inflation I can't see interest rates rising

Without wage growth I can't see strong inflation

With job creation weak and employees fearful I can't see wage growth

I see deflation ahead, I really do.

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I see deflation ahead, I really do.

I would be ecstatic (sp?) if that happened but I think the US and UK central banks will exhaust every unconventional weapon they can think of before that transpires

Benarke is an expert on the 1930s (thats why he got the job) so he probably has lots of ideas to try out on the subject

Equally the UK has shown its perfectly happy to punish prudent savers and reward feckless borrowers to avoid deflation

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Benarke is an expert on the 1930s (thats why he got the job) so he probably has lots of ideas to try out on the subject

I think Bernanke is on dangerous ground with the American people. I think more QE is out of the question.

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Without strong inflation I can't see interest rates rising

Without wage growth I can't see strong inflation

With job creation weak and employees fearful I can't see wage growth

Inflation is already running at 3-4% depending on which measure you use. It's got feck all to do with job creation and everything to do with PRINTING MONEY.

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Inflation is already running at 3-4% depending on which measure you use. It's got feck all to do with job creation and everything to do with PRINTING MONEY.

The governor of the BoE has already said he expects inflation to be 1% above target (ie. 3-4%) for most of the next year

This isn't strong inflation in his view

The MPC committee's fringes are pretty evenly split between one wanting more "PRINTING MONEY" and one wanting raised rates with most members favouring the status quo

I don't see this changing

Edited by Neverland

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  • 312 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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