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Housing Affordability Is At Near-Record Levels, New Figures Show

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Housing affordability is at near-record levels, new figures show, However first-time buyers will find it increasingly hard to join the property ladder this year.

Mortgage lending is "tighter now than it was six months ago", an economic consultancy has warned.

The prospect of buying a house will also become more daunting if, as is widely expected, the Bank of England "will start raising interest rates" this year, putting further strain on the cost of living, the consultancy warned.

The latest housing affordability index, published by Lombard Street Research (LSR) in conjunction with The Daily Telegraph, shows house prices are at their most undervalued level since the mid-1990s.

In the third quarter of 2010, the index reached 116.7, up 0.2 from the previous quarter, on a scale where 100 represents average affordability since the 1960s.

The index peaked at 118.2 in the second quarter of 2009, but the latest figures are still at a far higher level than most of the past two decades.

But bank lending on home loans is becoming increasingly "squeezed" since the financial crisis, LSR said, meaning very few first-time buyers will be able to take advantage of the so-called housing affordability.

Why build 'affordable' housing when it's all around us?

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The article is somewhere between stupid and insulting. It addresses short term debt service costs and not prices.

Debt service costs could remain low for the next few months based on the Bank Rate if one takes on a Tracker / SVR financing deal.

If one takes on a very long term fixed deal (10 years) or makes a long term assumption about the total interest costs on tracker / SVR deals, houses are as expensive as they have ever been.

If one is paying for a house based on accumulated savings, houses are almost as expenssive as they have ever been on average and are the most expensive that they have ever been in some parts of the country.

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The lowest base rates in 300 years and they are taking the current cost which is about 3.49% also a record low since records began.

Our index measures the affordability of average UK house prices in terms of income per household and the current average mortgage rate


The rate of interest has the largest effect on affordability and to exclude it in the analysis is a mistake. In addition, using earnings as a measure of

income ignores the effect of an important structural shift over the past two decades - the rise in the number of two-earner households.



We're a long way from having a bubble that's likely to burst By Diana Choyleva of Lombard Street Research

12:01AM BST 02 Oct 2006

The index is based on the average for the 1962-2005 period. The higher the index the more affordable are average house prices in terms

of household income per household and the current average mortgage rate. The balance between supply and demand for housing continues

to be positive. On the demand side, prices remain affordable at current levels of income and interest rates.



A new way of viewing house prices

House prices are still affordable and will rise rapidly over the coming year, according to research commissioned by The Daily Telegraph.

Together with economic consultancy Lombard Street Research, we have produced the first comprehensive measure. The results will surprise

many families, who are increasingly struggling to afford mortgage payments.

It reveals that although housing is close to being its most expensive since before the crash in the early 1990s, it is nowhere near the level of unaffordability that would trigger a crash.


Edited by northwestsmith2
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Not another idiot who thinks that short-term levels of interest matter at all to anyone with half a brain who would like to buy a house, particularly when the cost of the mortgage will only go up in the future :( I'm surprised these people aren't smashing their cars all the time - after all, the road is straight and clear right here, why not press the accelerator further? You don't have to think about the fact that you're already doing 90, you're in thick fog, and quite a lot of the road before the straight you're on was very windy.

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Until and unless the essential textbook relationship between gross pay and house prices be re-established, then houses are simply not "Affordable": in real terms.

What made house purchase less onerous (note: not "Affordable") was low base rates, coupled with extended tenors (Life of mortgage), insane LTVs and worst of all crazy income multiples.

With the raft of cost increases faced now by the average householder, no way can houses be considered "Affordable".

To suggest so, is arrant nonsense.

The core dysfunction will remain until and unless either house prices (Average) are circa £98,000: or gross wages/salaries are circa £78,000 PA (Average).

Presently average wage is around £28K PA: and the last average house price was circa £198,000.

So, some way to go then.


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The first two sentences just sum this up: This is obviously some weird new, definition of affordability which somehow also admits that people cant actually afford to enter the market. The people at the Ministry of Truth are obviously working overtime now.

Black is white

War is peace

We're all free

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So, with monthly affordability the easiest it has been since the last real trough over a decade ago, prices are still meandering down because lenders are reluctant to fund the UK housing market. That speaks of just how weak the market truly is.

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Viewed in isolation, sure. But the cost of keeping mortgage rates so low is inflation. There comes a point (has come a point?) where the extra burden of inflation negates any benefit from lower mortgage payments.

What people forget is that both inflation, particularly in basic commodities, food and fuel was falling in the 90s, and wages were generally growing quite well. Now we have stagnant wages and increasing living costs.

A house is pretty essential, but more essential is food and fuel, which will continue to take a bigger slice of peoples incomes. With the way thats going housing should be the cheapest in centuries, not just since the 1990s - and given that mortgages cant get much lower, the only point that can decrease is prices.

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The UK median Household Income is one way of considering affordability.

The last time house prices followed their long term inflationary affordability as a proportion of household income was the mid 1990's.

It is clear that if prices fall to the same level of affordability relative to median household income earnings and interest rates, as they did in the mid-1990s, we are still looking at a 50% + fall, from 2007 peak prices.

Home ownership has remained pretty level since 1990.

An important difference between this bubble and the late-1980s bubble is that this time there are a lot more buy-to-let speculators. These people are highly leveraged (their debts are high relative to their assets) so small changes in asset prices make a big change to their situation. As it becomes more difficult to borrow money, many of these people will find that they cannot refinance at affordable rates when their 'teaser' rates come to an end. The long term average Base rate is at 5%. When IR rise again these BTL Speculators must sell their properties or the bank will repossess.

I believe Under 10% of the UK homeowning [owner occupier] population would be facing negative equity if a 50% housing crash occured.

When IR do increase, the BTL investor, will not be in the position of the owner occupier homeowner, [with negative equity but an affordable mortgage,] who can afford to hang on as long as he doesn't lose his job, or move house.

The BTL speculators will have to lower their price to sell. [The bank bailouts have given the banks, an opportunity to engineer a soft bottom in the housing market. Which is in effect, theft. Stealing my money via QE and future taxes etc, to prop up house prices, making sure I cannot afford mine own, and have to pay for a 'liar loan' landlords retirement]

So who exactly is the government supporting here?

Because its not 'Joe Bloggs, the average worker, who simply wants to be able to work for a house, a job and a family, is it?

The Coalition need to act a lot quicker to redress the balance, otherwise risk being tarred with the same brush as Labour.

So the housing crash may manifest itself in a lack of volume initially. But it will be quite rapid once it gets going.

A 60% reduction from peak prices is likely to occur. As we will see an overshoot on the way down. [This should have happened already. It is simply a return to the long term average affordability of housing]

All the way back to 1998 prices.

Of course, Labour could have stopped it. But they wanted it to happen. And we have basically wasted a decade of work.

Where is the bailout for the people forced to waste tens upon tens of thousands in rent, for over a decade, as house prices went further and further out of our reach? House prices were purposefully manipulated to rise by Labour.

Its the biggest fraud in history. Carried out by Labour and the Banks.

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