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TheCountOfNowhere

It's Not Accurate From An Individual's Perspective.

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Regarding this graph....
Cn8470KWIAACNNz.jpg
I got this response from BBC type person :

@HousePriceMania The graph shows av prices vs av wages, I don't use this measure now as it's not accurate from an individual's perspective.

Can someone explain this please ?

Fair play top her for replying.

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Maybe she assumes absolutely every FTB has a joint mortgage, so basically you can halve the ratio (from an individual wage perspective) - therefore, another 20 years of HPI is possible.

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Regarding this graph....

Cn8470KWIAACNNz.jpg

I got this response from BBC type person :

katefaulkner@katefaulkner 8m8 minutes agoCity of London, London

@HousePriceMania The graph shows av prices vs av wages, I don't use this measure now as it's not accurate from an individual's perspective.

Can someone explain this please ?

Fair play top her for replying.

I would agree with her in that there's too much regional variance now. London compared to somewhere like Nottingham are totally different markets with totally different levels of affordability and will likely see totally different types of correction.

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My take is that BOMAD, credit and household income are too significant these days for wages to be considered relevant in isolation.

I think she probably has a point. The graph seems to tell the story that wages are an increasingly smaller part of the equation.

Falling arrears also supports the theory. As less and less people are struggling to pay mortgage payments. Meaning the money must be coming from somewhere else. As as lots of people point out, average wages rarely support mortgage payments.

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Regarding this graph....
Cn8470KWIAACNNz.jpg
I got this response from BBC type person :

@HousePriceMania The graph shows av prices vs av wages, I don't use this measure now as it's not accurate from an individual's perspective.

Can someone explain this please ?

Fair play top her for replying.

Saying, that we are in the new normal, :rolleyes:

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My take is that BOMAD, credit and household income are too significant these days for wages to be considered relevant in isolation.

I think she probably has a point. The graph seems to tell the story that wages are an increasingly smaller part of the equation.

Falling arrears also supports the theory. As less and less people are struggling to pay mortgage payments. Meaning the money must be coming from somewhere else. As as lots of people point out, average wages rarely support mortgage payments.

I see your point but I would ask, how sustainable is this in the long term?

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I see your point but I would ask, how sustainable is this in the long term?

No idea. I'm just playing devils advocate. My money is on a dip, but I could easily see it being sustainable for x years more, why not?

- More and more single people are renting and house sharing than before. Friends are buying houses together.

- Mortgage rates heading down. If households can afford these mortgages now, then why not in 5 years too?

- HPI is a global phenonomen, lots of other countries are further into HPI than us (canada, Oz, NZ, SW) but they havn't crashed yet. What makes us special?

- House prices have compounded 7% on average for the last 36 years since records began. Why not another 5 years?

- Brexit could easily limp on for 5 years before anything game changing happens beyond sentiment.

- HPI wealth is still being reallocated. Lots of London equity being cashed in and used to buy property for kids around country. (I know a mother who downgraded her London house to buy her daughter a sussex house outright). This isn't over yet.

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- More and more single people are renting and house sharing than before. Friends are buying houses together.

Meaning what?

- Mortgage rates heading down. If households can afford these mortgages now, then why not in 5 years too?

No they're not, they're heading up

- HPI is a global phenonomen, lots of other countries are further into HPI than us (canada, Oz, NZ, SW) but they havn't crashed yet. What makes us special?

And plenty have crashed too

- House prices have compounded 7% on average for the last 36 years since records began. Why not another 5 years?

That's irrelevant as it ignores inflation

- Brexit could easily limp on for 5 years before anything game changing happens beyond sentiment.

5 years is nothing

- HPI wealth is still being reallocated. Lots of London equity being cashed in and used to buy property for kids around country. (I know a mother who downgraded her London house to buy her daughter a sussex house outright). This isn't over yet.

Reallocated. So it's relevant how?

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If you did the charts on local prices and local wages then the charts would look even crazier. It would be helpful if she published the actual charts that she uses.

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1 - More and more single people are renting and house sharing than before. Friends are buying houses together.

Meaning what?

2 - Mortgage rates heading down. If households can afford these mortgages now, then why not in 5 years too?

No they're not, they're heading up

3 - HPI is a global phenonomen, lots of other countries are further into HPI than us (canada, Oz, NZ, SW) but they havn't crashed yet. What makes us special?

And plenty have crashed too

4. - House prices have compounded 7% on average for the last 36 years since records began. Why not another 5 years?

That's irrelevant as it ignores inflation

5. - Brexit could easily limp on for 5 years before anything game changing happens beyond sentiment.

5 years is nothing

6. - HPI wealth is still being reallocated. Lots of London equity being cashed in and used to buy property for kids around country. (I know a mother who downgraded her London house to buy her daughter a sussex house outright). This isn't over yet.

Reallocated. So it's relevant how?

1. Meaning it's becoming much rarer to buy a house on a single income alone, which means a graph of single wages to house prices is less relevant.

2. Mortgage rages have been heading down consistently in the UK and across the world. Do you have evidence otherwise? Forward guidance from BoE is of cut, not raise.

3. On average, are global house prices in UK style countries booming or crashing? I think probably the former.

4. In real terms, house price inflation is lower. In fact negative in most of the UK since 2007. So more sustainable presumably?

5. Five years is not nothing for me, if 7% growth happens every year. it will put housing out of my reach.

6. it's relevant to the thread! becuase generational equity transfer is more significant than wages, so wages to house price graph is less pertinent??

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1. Meaning it's becoming much rarer to buy a house on a single income alone, which means a graph of single wages to house prices is less relevant.

The dependency ratio is increasing, there are less jobs to pay for houses, irrespective of your own specific observations

2. Mortgage rages have been heading down consistently in the UK and across the world. Do you have evidence otherwise? Forward guidance from BoE is of cut, not raise.

Mortgage rates and base rates are not the same thing. Whoops.

3. On average, are global house prices in UK style countries booming or crashing? I think probably the former.

What's a UK style country?

4. In real terms, house price inflation is lower. In fact negative in most of the UK since 2007. So more sustainable presumably?

Less far to fall than in 2007 in the north. Agreed. But still overpriced.

5. Five years is not nothing for me, if 7% growth happens every year. it will put housing out of my reach.

In human terms it is something, agreed, in investment horizons it is nothing. Find something else to invest in instead of housing? Overall though I agree with you here, it is an absurd and offensive situation.

6. it's relevant to the thread! becuase generational equity transfer is more significant than wages, so wages to house price graph is less pertinent??

But it's a one off, whereas wages are not.

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With regard to house prices UK is special compared to many nations well into HPI because the UK's average real wages appear to have been significantly declining relatively compared to say Australia and many other nations with comparable HPI. It;s also quite likely there's a similar differential in the amount of total debt with the UK being one of the debt record breakers compared to other similar nations.

http://www.economist.com/blogs/dailychart/2011/11/global-house-prices

http://blogs.ft.com/ftdata/files/2015/02/UK-v-g7-real-wages.jpg

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irrespective of your own specific observations

Firstly, not my observations, just quoting stats to give some much needed balance on here.

1. Unemployment is falling. Household debt is falling. (stats may inaccurate of course)

2. I don't have evidence, but I was under the impression that mortgage rates were falling too in most countries.

3. UK style country is US, canada, australia, new zealand. nordics, all of which have higher HPI than us.

4. the graph and hence question was about nominal house prices I thought.... real is a different graph and different thread and different BBC perspective.

5. I do diversify my investments, but having some exposure to housing is desirable. Zero exposure to housing is not a diversified positiion.

6. Why is it a one off? It's happening every day.

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With regard to house prices UK is special compared to many nations well into HPI because the UK's average real wages appear to have been significantly declining relatively compared to say Australia and many other nations with comparable HPI. It;s also quite likely there's a similar differential in the amount of total debt with the UK being one of the debt record breakers compared to other similar nations.

http://www.economist.com/blogs/dailychart/2011/11/global-house-prices

http://blogs.ft.com/ftdata/files/2015/02/UK-v-g7-real-wages.jpg

But isn't the whole point of the OPs post, is that wages, real or otherwise, are becoming less and less significant in predicting house prices?

Your graphs back this up quite well. UK has lower wage growth than italy and japan, yet higher HPI,

So there is no proportionality between wages and houseprices. Exactly supporting the BBC tweet you otherwise seem to be opposing?

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I have local wages vs local house prices here.

Thanks for the link and plenty of those ratios are pretty interesting and quite staggering. I did wonder whether she meant even more local down to small districts of towns and cities (maybe partly to avoid having to discuss the officially released chart data in its macro format). There is some sense in going down to small district level when considering value in a local market but it wouldn't help with assessing the country's economy as a whole.

Edited by billybong

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But isn't the whole point of the OPs post, is that wages, real or otherwise, are becoming less and less significant in predicting house prices?

Your graphs back this up quite well. UK has lower wage growth than italy and japan, yet higher HPI,

So there is no proportionality between wages and houseprices. Exactly supporting the BBC tweet you otherwise seem to be opposing?

I'm not opposing anything. She could have a fair point but my comment on the tweet is that it needs clarification as she says what she doesn't use but doesn't appear to clarify what she does use - so it needs clarification to be helpful - and she doesn't give a very clear explanation why she doesn't use it. There's too little clarity in the media these days.

Apart from that I was then answering your question about what was special about the UK in terms of HPI as HPI appears to be a global phenomenon and there's no apparent crash elsewhere - it's special compared to the others for the reasons I gave. The UK's HPI is near the top of the HPI percentage increase league but relatively low in wage increases and it's high in increases in total debt. Maybe there's other factors to add as well - the excessive use of money from rich overseas buyers and extensive use of supports like HtB etc. So it's especially stretched and supported.

Edited by billybong

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It's an infuriatingly vague comment. She says "it's not accurate from an individuals perspective", when that is exactly what the graph is showing. You can make the data local, or switch to medians, but its very much from an individuals perspective as opposed to household income.

To reject the graphs use is to reject the importance of a single persons income versus house prices.

That feels like an ideological position that says it's fine for mortgages to require two salaries, for single people to be priced out, for regular handouts from parents and grandparents to become the norm, and for credit taps to be opened ever wider.

That's not a world I want to live in.

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It's an infuriatingly vague comment. She says "it's not accurate from an individuals perspective", when that is exactly what the graph is showing. You can make the data local, or switch to medians, but its very much from an individuals perspective as opposed to household income.

To reject the graphs use is to reject the importance of a single persons income versus house prices.

That feels like an ideological position that says it's fine for mortgages to require two salaries, for single people to be priced out, for regular handouts from parents and grandparents to become the norm, and for credit taps to be opened ever wider.

That's not a world I want to live in.

Yes that is what she is rejecting precisely.

Your premise is that house pries are strongly correlated with single persons income. She is stating there is no statistical basis for assuming such a correlation is strong.

And looking at the graphs, I must admit she seems to have a point. Much as intuitively it seems there should be a correlation, there really isn't.

This lack of correlation is a source of much anger on here. A lot of people base their housing investment decisions based on this premise. But the evidence is growing every single day that this premise is very flawed.

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Yes that is what she is rejecting precisely.

That's puzzling, because Kate Faulkner (the "she" in question) expressly endorsed this BBC article,

http://www.bbc.co.uk/news/business-36866975

This is an article which uses individual incomes relative to house prices as the key measure of affordability. She described the article as a, "Great article from superb BBC News journalist Brian Milligan".

Why is individual income "not relevant" one minute, but then the next minute it's a solid basis for a "great article"?

For what it's worth I don't place much weight on individual income to house prices either, for exactly the reasons you mention, however I wouldn't then promote an article that is written from that exact assumption.

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