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Moving Up In The World - The Pricing Out Of Purchasers

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I normally post Neal's charts in the charts thread but I felt this deserved a thread of its own


Historically, the average income of a first-time buyer was on the 6th decile of all household incomes but in the late 1990’s this began to rise and average first-time buyer incomes are now mid-way between the 7th and 8th deciles. Meanwhile, average incomes for home-movers were on the 8th decile during most of the 1990’s and early 2000’s but in 2005-06 they shot up to above the 9th decile as the second leg of the housing bubble inflated.

Of course if we stopped buy ipads we'd be fine :rolleyes:

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Nice work, it seems whichever way the deck is cut, prices look around a third too high.

But, but, if you give people new money they will buy at any price. :blink:

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"But, but, if you give people new money they will buy at any price :blink: "

I suppose that the root cause of the whole problem is cheap money and zero % interest rates. If mortgage rates were back up to the loft heights of 5%, where do you think prices would be?

The million dollar questions are:

  1. How much longer can money be made available so cheaply?
  2. Will money get any cheaper?
  3. In 10 years time, will we be sat here looking at mortgage rates of 0.5% and house prices at a million £?

Interest rates of the developed nations tend to move together, I suppose the last countries to lower rates are NZ and AU, they are both at 2.5% and 2.75% so I guess there is a little room for those currencies to fall.

From the looks of it there really needs to be a turning point, possibly another crisis that starts to send interest rates higher.

Until then the situation is this:

People need a house to live in, under this pressure they will borrow the maximum amount that they can afford to buy the best house they can.

The price of borrowing essentially sets the price of property.

Personally I am still sticking to my 2015 below and I think it will be Japan and China who kick-start the storm. Don't forget folks then longer the can kicking goes on, the higher the debts become, the more ponzi schemes they add the more complex and fragile the global economy becomes.At some point it will break, it is inevitable, it came pretty close to it in 2008.

Back in 2008 is was stupid and excessive mortgage lending that caused the problem, today it is stupidly high public spending and borrowing that is going to cause the problem. Since many could not predict the exact timing of the 2008 crisis, then I should think that no one can predict the timing of the next crisis, but believe me it will happen.

The housing bubble ran for 7/8 years before falling apart, so I am predicting that the government debt bubble will last around the same amount of time. In the scale of things I believe that we are at the 2006 point which is disbelief that things are still continuing. The next part of the cycle will be the wile cyote moment when things start falling apart and everyone is acting like nothing is wrong.

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The problem here is that although people MAY borrow while they can at low rates, the other side of the coin is the Asset that is the mortgage ends up in someone elses pension funds, their savings returns and banks capital.

When the defaults come, and they must, that puts the rest of us at risk too.

This stupidity is systematically blowing up promises that cant be met.

Specially when "growth" is below interest rates.

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The UK economy is heavily reliant on pensioners:



Someone buying a single-life policy with payments increasing by three per cent each year could have expected a starting income of £5,040 from a pension pot of £100,000 in spring 2009, compared to just £3,580 this year.


At the moment, however, the average UK pension pot is estimated to be around £30,000

So where does this end? When your €100,000 pension pot only earns you €1k per year, but your house is still worth the same as 10 years ago.

There has to be a limit to these things, otherwise all pensions will need up on state support which will increase borrowings. Perhaps most of the property owning pensions will be forced financially into selling up, only problem with that is that there are very few suitable properties to downsize into.

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Another point is that the chart shows household incomes which likely as not doesn't mean just one income. That point isn't that clear in the text unless it's read very carefully - but it can be seen by reference to the values of income in the charts which at the lower levels are significantly higher than published incomes for individuals.

So the average single person these days has little or no chance of buying unless offered a fraudulent mortgage or participating in some sort of shared living arrangement.

Even Help to Buy likely won't help to buy in the single person's case.

Edited by billybong

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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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