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Stephen Nickell's 2 Earner Household Point

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Hi all, new poster here. Be gentle.

I was just reading what Stephen Nickell of the MPC had to say on the housing market. He was typically bullish but did make an interesting point, one I had not heared before. He said that traditional models look at house price to earnings ratio, which as we know is sky high. These models however do not take into account the fact that there are many more 2 earner households than before (more women working than staying home now etc etc). Think about it - 2 earner household = more expendable income than 1 earner household= more money to spend on housing= house price increases

He even goes so far as to say that we have not had a house price boom at all!

Can anyone here disprove this theory, because I am having a hard time!

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I am not saying that he is right. I am also not saying that this is the only reason for the house price boom and is why house prices wont crash. I just think it is a point worth considering, one that I have not seen considered before

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I suppose my instant rebuttal would be a question:  Did the 2-salary/1-salary ratio more than double in the last three or four years?  (That is, did many millions of stay-at-home housewives suddenly go out to work, mainly between 2000 and 2003?  Also did that wave of abandoned fluffy slippers spread north and out of London?) I didn't see it happen.

Depends if these two income families have kids or not. A 2 income family with 2 kids in child care every day has about the same income as a 1 income family (about half my wifes salary goes on childcare for one child).

Sill, my mother in law is coming to stay soon -much cheaper and better child care.

Anyway back to the point. I am sure it does make a difference but not as much as you think and would in no way explain the huge HPI in the last few years.

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Hi all, new poster here. Be gentle.

I was just reading what Stephen Nickell of the MPC had to say on the housing market. He was typically bullish but did make an interesting point, one I had not heared before. He said that traditional models look at house price to earnings ratio, which as we know is sky high. These models however do not take into account the fact that there are many more 2 earner households than before (more women working than staying home now etc etc). Think about it - 2 earner household = more expendable income than 1 earner household= more money to spend on housing=  house price increases

He even goes so far as to say that we have not had a house price boom at all!

Can anyone here disprove this theory, because I am having a hard time!

So which is it - more single occupier homes pushing up demand or more double income household pushing prices up (for the same demand of housing stock)? As Durch points out, has this dramatic change occurred in the last 5 years or could it be that lending policies became more lax instead. I wonder. :rolleyes:

JY

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All explained here from moneymorning;

QUOTE" - Forget the staid image of bankers in starched collars – the Bank of England has got a celebrity advisor on board.

- Fresh from a talk by Stephen Nickell, one of the nine members of the bank’s interest-rate setting committee, MoneyWeek can exclusively reveal the identity of this great economic mind.

- It’s Phil Spencer.

- Yes, that Phil Spencer. Estate agent Phil Spencer of Kirsty’n’Phil fame – the duo that present all those TV shows that tell you how property can only go up, and that a flat in the bullet-riddled wastelands of inner Nottingham is a good investment.

- Professor Nickell, one of the Monetary Policy Committee members who voted for a rate cut in August, was arguing that there wouldn’t be a property crash – because there probably hadn’t been a property bubble in the first place.

- So the 123% rise in house prices between mid-1999 and

mid-2004 wasn’t a property bubble? No, says Professor Nickell, because this time it’s different.

- He mentioned the standard property bull arguments that higher divorce rates and immigration, more double- income households, and lower building rates had pushed up supply relative to demand, though admitted this would only account for some of the rise.

- A bigger effect came from low inflation and low nominal interest rates meaning that people could afford to borrow more, pushing up the amount they spend on houses.

- Some might argue that if lower interest rates push up house prices so drastically, that might mean the Bank of England should take some responsibility for not acting to prevent such an unsustainable rise – but not Prof Nickell. According to him, it’s not up to the bank to target asset bubbles – even if there was a property bubble in the first place.

- But Prof Nickell’s clinching argument against a house price crash was that it still hasn’t happened. In fact, he said, even though house prices “more or less”

stopped rising in July 2004, “one pundit felt able to remark by November 2004 that ‘public sentiment has finally accepted there will not be a crash’”. That pundit was Phil Spencer.

- We can’t be the only ones slightly concerned that someone with his hand on the UK’s economic tiller is relying on the UK’s biggest property bull to back up his opinions on the housing market.

- Here at MoneyWeek, we prefer to back up our take on property with concrete evidence – so let’s look at the latest statistics.

- The Royal Institution of Chartered Surveyors reported this month that house prices kept falling in August. In fact, according to RICS, prices have been falling for more than a year now, which suggests Prof Nickell’s assertion that there are no signs of a crash is a bit short-sighted.

- But to be fair, the group also saw buyer inquiries rise by the most in over a year. And the Council of Mortgage Lenders reported a pick-up in the number of mortgages taken out in August, to 101,000 from 96,000 in July.

- So is Prof Nickell right? Should Phil Spencer be the next addition to the MPC?

- We don’t think so. One fresh piece of evidence comes from the team at Capital Economics, who have literally been scouring the gutters.

- By looking at the August data on drainage searches, which buyers tend to commission when they are serious about buying a property, they believe that increased buyer interest is unlikely to translate into higher sales. The number of searches fell 10% on July, a bigger slump than at the same time last year, when the housing market first started to cool off.

- But if you really want to know about house prices, just look around your local area. At MoneyWeek, we know for a fact that prices have fallen by about 20% in Docklands. And just this week we received a letter from a reader, who decided to sell their home to rent in mid-June last year. They put it on the market for £310,000, but didn’t manage to sell until March this year – at £249,950. That’s 19% down on their asking price.

- That house was on the market for nine months before the sellers decided to take the hit. How many more people are sitting on their homes in the hope that things will pick up again? And what will happen to the market if they don’t?

- The sellers managed to break even, but are now thanking their lucky stars they’re renting and not buying. We recently published a very in-depth piece from Capital Economics on the costs of renting versus buying – if you missed it, you can read it here:

http://www.moneyweek.com/article/1316

- Our editor-in-chief, Merryn Somerset Webb also has some choice words to say about the concept that renting is ‘dead money’ – you can read those here:

http://www.moneyweek.com/article/1261

- Prof Nickell’s speech came just ahead of the latest minutes from the Bank of England’s September MPC meeting. The vote to hold rates at 4.5% was unanimous, which the market had expected, with the MPC caught between rising inflation and shaky economic growth.

- Strangely, the minutes don’t note any discussion of “Location Location Location” or property investment opportunities in Nottingham. But oil on the other hand did make an appearance. The MPC reckoned that prices will stay high and could go even higher in the near- term – and if Hurricane Rita stays on course for Texas, that’s a fairly safe bet."

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I am not saying that he is right. I am also not saying that this is the only reason for the house price boom and is why house prices wont crash. I just think it is a point worth considering, one that I have not seen considered before

I'd say the total reliance on dual incomes is almost a cast iron gaurantee that during economic troubles the fallout would be a lot worse.

There are all sorts of shifts in employment and taxation that have been going on progressively for decades and some shifts far more recent.

Married couples taxation is markedly worse than it was before.

Dual Miras - gone, well all Miras gone.

Pensions - generous company pensions going rapidly.

Jobs for life - rapidly going, increasing numbers fo short term contract workers.

Temps workers - plenty of those about - in fact that may be where most of the jobs growth has been.

Most of the changes add to financial security and the ability to double up earnings for house purchase not one bit. People don't realise the scale of it yet becuase some of these factors will take decades to pan out - just when the boomers all retire and the big bills start rolling in.

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There is little doubt that dual income families have an impact on house price inflation. This is a long-standing phenomenon. A male professional in the 60s with his wife at home looking after the children could expect to live in a house and educate his children to a standard that would now require the income of himself and his wife. Therefore there has been inflation, in that his individual contribution buys less. You can think of it as the purchasing power of families having been recalibrated to assume 2 incomes. This didn't happen in the last few years but over the last few decades. It hasn't created a bubble in house prioes but it has created significant problems for child rearing that remain unresolved.

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There is little doubt that dual income families have an impact on house price inflation. This is a long-standing phenomenon. A male professional in the 60s with his wife at home looking after the children could expect to live in a house and educate his children to a standard that would now require the income of himself and his wife. Therefore there has been inflation, in that his individual contribution buys less. You can think of it as the purchasing power of families having been recalibrated to assume 2 incomes. This didn't happen in the last few years but over the last few decades. It hasn't created a bubble in house prioes but it has created significant problems for child rearing that remain unresolved.

All good points. I think Mr Gemmill hit the nail on the head. Its does have an effect long term but it does not answer short term rises. I just did a quick survey around my office (Most of whom are like me, in there 20's) and most of there mothers returned to work by the time they were able to go to school. So that makes the 2 earner trend come into effect 15-25 years ago.

Thanks for your time and input chaps and chapettes!

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There is little doubt that dual income families have an impact on house price inflation. This is a long-standing phenomenon. A male professional in the 60s with his wife at home looking after the children could expect to live in a house and educate his children to a standard that would now require the income of himself and his wife. Therefore there has been inflation, in that his individual contribution buys less. You can think of it as the purchasing power of families having been recalibrated to assume 2 incomes. This didn't happen in the last few years but over the last few decades. It hasn't created a bubble in house prioes but it has created significant problems for child rearing that remain unresolved.

I would like to add:

Its the marginal buyer, stupid. (As in 'Its the economy, stupid') (Not you Archie -great goal v Holland BTW! :D )

The increase in dual incomes HAS HAPPENED. It has now ceased to be an increase. Thus again, the marginal buyer is dead.

Stephen Nickell apparently is up for a new job - presenting Lx3.

Edited by Financial Planner

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I would like to add:

Its the marginal buyer, stupid.  (Not you Archie -great goal v Holland BTW!  :D )

The increase in dual incomes HAS HAPPENED. It has now ceased to be an increase.  Thus again, the marginal buyer is dead.

Stephen Nickell apparently is up for a new job - presenting Lx3.

For the stupid , please define the term marginal buyer

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Some thoughts on the subject ...

If an increase in dual income families has forced prices up ... then once the market has adpated to this then (by logic) this would mean that prices would rise no more ... unless 3 members of the family went out and worked.

So once the market has adapted to 2 salaries, then would this also mean that it is more at risk as the familiy is dependant on two salaries ... what if one of them loses their job?

Also, what are the jobs both people are doing ... are they great payers? or are people mortgage themselves to cr&p jobs just because the market is forcing them to?

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For the stupid , please define the term marginal buyer

I suppose just saying the increment of housing demand won't help here <_< .

Ummmmmm, OK, I'm over-simplifying with respect to housing but in general the marginal buyer is the person who is right on the edge of buying now. If prices (or, for housing, repayments) go up even a little bit they don't buy. If prices go down a little bit they do buy.

It is the behaviour at the margin that determines the direction of any market, and of course once the market moves you get a new marginal buyer (because the old one isn't marginal any more, they're either a buyer or a non-buyer).

Hope that helps.

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For the stupid , please define the term marginal buyer

Sorry.

The long term buyer is the person who buys BP shares and holds them for donkeys.

The marginal buyer is the trader who adds on extra interest and no doubt price.

Same re houses - the marginal buyer, is for example the buy to letter who hadn't bought before, or whereas before a single income household would buy say a 3 bed house, a jt income house might buy a 4 bed house or a 3 bed house at a greater multiple of a sgle person's earnings.

How's that?

Read Farlow - in the Home Page.

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Personally I think this is a bit of a red herring for yet another reason.

My folks are reasonably typical of many of their generation. Mum worked till she started having children, stopped (as was expected of her by her employer) and then never went back to work again.

My parent's ploy back then was to save like mad whilst they were both working without children to build up a deposit, take out the biggest mortgage they could once they wanted a family, hold their belts wincingly tight for the first four years of being on one income and then gradually relax as inflation rapidly reduced their loan value for them.

Nowadays various bits of this strategy don't work. You can all fill in the blanks. Most strikingly, the 'borrow and let inflation do the work' bit is certainly a bit of a thing of the past. INFLATION as felt by us - i.e. the costs of things you and me want on a regular basis - goes up to quite high levels, but 'inflation' - as measured by a random basket of stuff mainly consisting of imported white goods - stays low enough not to allow our salaries to rise....

I have this argument with my folks regularly and tell them they are better off than our generation. My father also worked in the public sector and could afford an enormous house when he was 32 and retired at 53!! The same is not true, and nor will it be, of his son....

My mum, on the other hand, doesn't get it. She just tells me we are lucky to have a colour television as they didn't have on till they were 30....

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More divorces & more two income households.

Can someone please explain for me.

More two income households because women work more now then in the past (but I agree this timing doesn't fit with HPI)

More divorces..well...people get divorced.

BUT although people get divorced there are also a lot of divorcees who remarry - this removes two single person households (and two houses) and replaces it with one.

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Personally I think this is a bit of a red herring for yet another reason.

My folks are reasonably typical of many of their generation.  Mum worked till she started having children, stopped (as was expected of her by her employer) and then never went back to work again.   

My parent's ploy back then was to save like mad whilst they were both working without children to build up a deposit, take out the biggest mortgage they could once they wanted a family, hold their belts wincingly tight for the first four years of being on one income and then gradually relax as inflation rapidly reduced their loan value for them.

Nowadays various bits of this strategy don't work.  You can all fill in the blanks.  Most strikingly, the 'borrow and let inflation do the work' bit is certainly a bit of a thing of the past.  INFLATION as felt by us - i.e. the costs of things you and me want on a regular basis - goes up to quite high levels, but 'inflation' - as measured by a random basket of stuff mainly consisting of imported white goods - stays low enough not to allow our salaries to rise....

I have this argument with my folks regularly and tell them they are better off than our generation.  My father also worked in the public sector and could afford an enormous house when he was 32 and retired at 53!!  The same is not true, and nor will it be, of his son.... 

My mum, on the other hand, doesn't get it.  She just tells me we are lucky to have a colour television as they didn't have on till they were 30....

I have the same argument with my mother. She glazes over when I mention that our generation will probably have to provide a pension for ourselves too. As I understand it (and I freely admit I'm no expert) annuities currently pay out about five percent.

That means (in todays terms) if I wanted to retire on something really extravagant like, oh I dunno, 16K pa, then I'll need a pension pot of 320K

And there are idiots wandering around in their thirties thinking they will retire early :lol:

Or I could have gone without colour telly at 30 and retired at 53.

(Genuine question - Does anyone know If I'm right with the pension issue?)

Edit: dodgy calculation removed!

Edited by TW11

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More two income households because women work more now then in the past (but I agree this timing doesn't fit with HPI)

More divorces..well...people get divorced.

BUT although people get divorced there are also a lot of divorcees who remarry - this removes two single person households (and two houses) and replaces it with one.

Funny. That goes counter to every statistic I have been hearing that are saying households have, in fact, been getting smaller as more people are living on their own. He cannot argue it both ways. A rise in two income households implies two people living together. Greater demand because of smaller households implies people living alone. Sounds like he is making up an argument to fit his conclusion. <_<

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Funny. That goes counter to every statistic I have been hearing that are saying households have, in fact, been getting smaller as more people are living on their own. He cannot argue it both ways. A rise in two income households implies two people living together. Greater demand because of smaller households implies people living alone. Sounds like he is making up an argument to fit his conclusion.  <_<

What argument?

What conclusion

This was merely clarifying points in a previous thread and is a statement of fact. Dual incomes are accounted for because women work. People get divorced. People get remarried FACT. There is no argument or conclusion

Read the thread in context

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This is the usual attempts to justify the unjustifiable from one of Brown’s placement on the MPC. For all women born since at least 1960 it has been normal to go out to work and continue working after starting a family. Dual earning households have been the norm for 25 years, they’re hardly a recent phenomenon that excuse the current high levels of house prices.

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Juts in case you missed this.

I don't post much under this alias. I only use it when I have "sensitive" information.

In short, I was speaking to my acquaintance who works at the BoE again yesterday.

I didn't realise this previously, but only 2-3 years ago he was working on the housing market. At that time his analysis was that prices were going to go down. He gave this advice to some friends, who promptly ignored him and went ahead and bought anyway.

There's two lessons from this. One, leading institutions don't really know what where we are with the housing market, and are having to re-write their theories as they go on. Second, even if people get advice from someone at the BoE they ignore it as "house prices don't go down".

I suspect that the sheer bloody-mindedness of the consumer in this country has mystified many learned people.

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Hi all, new poster here. Be gentle.

I was just reading what Stephen Nickell of the MPC had to say on the housing market. He was typically bullish but did make an interesting point, one I had not heared before. He said that traditional models look at house price to earnings ratio, which as we know is sky high. These models however do not take into account the fact that there are many more 2 earner households than before (more women working than staying home now etc etc). Think about it - 2 earner household = more expendable income than 1 earner household= more money to spend on housing=  house price increases

He even goes so far as to say that we have not had a house price boom at all!

Can anyone here disprove this theory, because I am having a hard time!

I don't think this has much to do with it.

However, I did realise that as a single person I was competing with couples to "get on the ladder". They clearly had an advantage and many of my friends were able to take on mortgages that I would not have been able/comfortable to do.

I have also however seen the the flip side. Many of these couples were not married or (in my opinion) likely to even stay together for even a fraction of their 25 year mortgage. Consequently I have seen 3 forced sales amongst my friends due to couples breaking up.

There is also no reason why the two earner household phenomenon should continue. Attitudes and demographics continually change.

NDL

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What argument?

What conclusion

This was merely clarifying points in a previous thread and is a statement of fact. Dual incomes are accounted for because women work. People get divorced. People get remarried FACT. There is no argument or conclusion

Read the thread in context

Sorry. I was commenting on Nickell's arguments. Not directed at anyone here.

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Hi all, new poster here. Be gentle.

I was just reading what Stephen Nickell of the MPC had to say on the housing market. He was typically bullish but did make an interesting point, one I had not heared before. He said that traditional models look at house price to earnings ratio, which as we know is sky high. These models however do not take into account the fact that there are many more 2 earner households than before (more women working than staying home now etc etc). Think about it - 2 earner household = more expendable income than 1 earner household= more money to spend on housing=  house price increases

He even goes so far as to say that we have not had a house price boom at all!

Can anyone here disprove this theory, because I am having a hard time!

this proves that the MPC are well aware of the crisis in housing and are making manouvers to sustain an advantage to the banking system. no matter what you earn or however comfortable our standard of living becomes, they will always keep housing just out of your reach,. they make you jump for it. dive through hoops.

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This is the usual attempts to justify the unjustifiable from one of Brown’s placement on the MPC. For all women born since at least 1960 it has been normal to go out to work and continue working after starting a family. Dual earning households have been the norm for 25 years, they’re hardly a recent phenomenon that excuse the current high levels of house prices.

But there is one change that you have overlooked. When I bought my first house in the 70's we needed both my wife's and my own salary to get on the ladder. However, after 5 years inflation had reduced the size of our mortgage in real terms, such that my wife was able to give up work for 20 years to raise our children. Ironically, it's the lack of high inflation that makes it necessary for both to work for ever. Nephews and nieces of mine have had kids, but the mother has played little part in their early upbringing, as they've been farmed out to grandparents and minders while the mother goes out to work.

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  • 301 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% +
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