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Yankee

Contrarian Article From Ny Times

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This article in today's NYTimes surprised me as it seems counter-intuitive:

PORTLAND, Me. - Despite a widespread sense that real estate has never been more expensive, families in the vast majority of the country can still buy a house for a smaller share of their income than they could have a generation ago.

A sharp fall in mortgage rates since the early 1980's, a decline in mortgage fees and a rise in incomes have more than made up for rising house prices in almost every place outside of New York, Washington, Miami and along the coast in California. These often-overlooked changes are a major reason that most economists do not expect a broad drop in prices in 2006, even though many once-booming markets on the coasts have started weakening.

The long-term decline in housing costs also helps explain why the homeownership rate remains near a record of almost 69 percent, up from 65 percent a decade ago.

Full article: http://www.nytimes.com/2005/12/29/realestate/29afford.html

But then there's this article:

Existing Home Sales Slip in November

http://www.nytimes.com/aponline/business/AP-Economy.html

My question for all you Brits is this: What are the affordability stats for Britain? Are Brits spending a smaller percentage of their income on housing than in the early 1980s? I've been assuming they're spending more. But what do the numbers actually show?

Don't worry, I'm not turning into a bull. This article in the Times really confused me, however, as I have intuitively felt that people are spending a greater percentage of their income these days on housing.

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Interesting.

He cites that in areas that "only" constitute 25% of the market (East and West coasts) a family requires to put 50% (!!) of the annual median income towards their mortgage repayments. That is astronomical.

The average affordability of Nowhere Indiana and Hicksville North Dakota is going to be higher but this is spin by the side door.

If the average median income was normally distributed then the article would work but the East and West Coasts will have the highest average income pushing up the national average. A Wall Street bankers income of $2m will pump up the average but won't mean that Mary-Lou and Billy-Bob earn any more in Cousinmarry Tennessee.

Sorry Yankee not able to help on UK stats. Affordability was always cited as a reason for the market going up but like cheap money it has to get MORE affordable in order to continue the stimulus. Static affordability and increasing prospect of capital loss leads to market falls.

The Fox

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One thing to bear in mind is that inflation traditionally ate away at the value of your loan, so if you struggled for a few years you soon didn't. With low inflation, low wage inflation, the debt burden as a proportion of income remains fairly level. Therefore, it may be lower when you buy, but it doesn't get easier (and may get harder in the next few years) as it did in the past.

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My question for all you Brits is this: What are the affordability stats for Britain? Are Brits spending a smaller percentage of their income on housing than in the early 1980s? I've been assuming they're spending more. But what do the numbers actually show?

Don't worry, I'm not turning into a bull. This article in the Times really confused me, however, as I have intuitively felt that people are spending a greater percentage of their income these days on housing.

Depends if you include 'legacy' sales, if you bought years ago and have an old mortgage and rates drop to half the previous level then obviously the debt is much cheaper to service so you have more disposable income, assuming you don't run out and extract equity, and ignoring the fact tax and utilites have now taken up the slack.

But of course that is no reflection on the sort of position a new buyer would be in taking on a new mortgage at current market prices, they could easily lose >20% of their income just servicing a interest only debt.

P.S. There is a downside, low IR's mean lower reported inflation so that debt is just going to linger for longer, despite the fact it's cheaper to service.

Edited by BuyingBear

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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% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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