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House Prices Compared With Earnings 1952 To 2006

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Took this data from Nationwide and simply devided average house prices by average earnings. All first time buyers should look at the result.

It clearly shows that there has never been a worse time to buy in the past 5 decades!! When parents and grandparents tell you that property is a safe investment, try to imagine the impact that negative equity will have for you in comming years when the price to earnings ratio returns to the long term average. Remind yourself that they never had to sacrifice as much of their earnings as you will to buy a house now. Don't be conned into believing that it's safe. It's not. Its a one sided gamble with the only possible outcome being financial destitution. Sorry for being so bleak, but negative equity ruins lives!

historical_price_to_earnings_ratio.doc

historical_price_to_earnings_ratio.doc

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Took this data from Nationwide and simply devided average house prices by average earnings. All first time buyers should look at the result.

It clearly shows that there has never been a worse time to buy in the past 5 decades!! When parents and grandparents tell you that property is a safe investment, try to imagine the impact that negative equity will have for you in comming years when the price to earnings ratio returns to the long term average. Remind yourself that they never had to sacrifice as much of their earnings as you will to buy a house now. Don't be conned into believing that it's safe. It's not. Its a one sided gamble with the only possible outcome being financial destitution. Sorry for being so bleak, but negative equity ruins lives!

historical_price_to_earnings_ratio.doc

Could you change this include morgage cost based on historic interest rates/Inflation? Ie average cost of servicing an average morgage against average earnings?

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Could you change this include morgage cost based on historic interest rates/Inflation? Ie average cost of servicing an average morgage against average earnings?

Why? it seems simple enough to me.

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Took this data from Nationwide and simply devided average house prices by average earnings. All first time buyers should look at the result.

It clearly shows that there has never been a worse time to buy in the past 5 decades!! When parents and grandparents tell you that property is a safe investment, try to imagine the impact that negative equity will have for you in comming years when the price to earnings ratio returns to the long term average. Remind yourself that they never had to sacrifice as much of their earnings as you will to buy a house now. Don't be conned into believing that it's safe. It's not. Its a one sided gamble with the only possible outcome being financial destitution. Sorry for being so bleak, but negative equity ruins lives!

historical_price_to_earnings_ratio.doc

Very interesting graph!Taking the average income to house price it seems to sit happily at 3.5 times annual salary.I have little doubt that it will return to this ratio and that is not through rampant wage rises.

I have to agree that it is certainly a one sided gamble and one not worth taking.

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Why? it seems simple enough to me.

because the % of money going out of an average income (FTBer) on housing over the past 50 years would be an interesting graph :)

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Note that the previous highest peak in 1989 was at 5x earnings. Now up to over 6x earnings, the crash could be absolutely collossal! :(

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Note the 3 big falls in this ratio. Not caused by incomes falling!!!!!

This time things are different. The 5 most dangerous words in investment. BUT, maybe it could be...

(1) The previous crashes have all happened at times of much higher inflation compared to now (ie the falls were massive, buut not quite so large nominally). Given my knowledge of human psychology people don't like losing money but don't understand inflation. This time we need bigger nominal falls to have the same real effect, and I think many people will just sit tight rather than sell in such an environment meaning falls are entirely due to forced sellers. If that is the case, ie much reduced supply, and given that there are always a few buyers, maybe prices won't fall too much?

(2) BTL might add stability. Many people believe in property for the long term (rightly so, though now clearly isn't the time to gear up), and will be faced with large CGT bills if they sell. Maybe they'll hold on so long as the rents cover the mortgage.

(3) People have never been more certain that their companies and government do not give a shit whether they retire in poverty or not. Right or wrong many people don't understand shares and will stick in property through thick or thin (see (2))

(4) If true at all, the above applies to half decent areas and half decent properties. Some dodgy areas that have seen spectacular growth driven by out of town BTLers buying new build flats will tank big style.

Whatever the truth I am 100% certain that a would be FTB, currentyl sitting on the fence, can't go far wrong waiting a year or 2 and seeing what happens.

FF

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An interesting graph (and thanks for taking the time to put it together) but I honestly think the true situation is even worse than this.

The Nationwide average seems quite low (156K). Other bodies put the figure quite a bit higher (Financial Times 193K, Hometrack 160K, Rightmove 196k, ODPM 186K, etc)

And in London, average property prices seem closer to 10x average earnings :(

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Guest Bart of Darkness
When you say 'average', what do you mean?

Please let's not have another mean vs. median debate.

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That's very useful - not least because it shows prices have only been above the long term average for five years. Those who say we have now reached a 'new paradigm' have nothing on which to make the claim!

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(1) The previous crashes have all happened at times of much higher inflation compared to now (ie the falls were massive, buut not quite so large nominally). Given my knowledge of human psychology people don't like losing money but don't understand inflation. This time we need bigger nominal falls to have the same real effect, and I think many people will just sit tight rather than sell in such an environment meaning falls are entirely due to forced sellers.

(2) BTL might add stability. Many people believe in property for the long term (rightly so, though now clearly isn't the time to gear up), and will be faced with large CGT bills if they sell. Maybe they'll hold on so long as the rents cover the mortgage.

Can I counter the low inflation theory with one of my own, it will actually speed up the crash and make it deeper.

In the past high inflation has hidden the falls and to some extent cushioned them by eroding the underlying debt, this time it will not happen. The falls in prices will quickly become apparent to the wider public, without the cushion of debt erosion the fear of negative equity could prompt panic selling by homeowners. In addition, with the level of overstretch already evident many will suffer huge losses which will depress the market for years to come as many homeowners will take years to pay off the negative equity.

On the other issue, I don't believe that BTL will add stability, quite the opposite. CGT will only be payable if they make a gain, and most of the new btls don't even cover the mortgage let alone agents fees/repairs. Without the emotional investment in the home BTLs will be the first to sell once they see the capital value of their investment heading south.

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That's very useful - not least because it shows prices have only been above the long term average for five years. Those who say we have now reached a 'new paradigm' have nothing on which to make the claim!

Huhh?? :blink:

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What makes everyone so sure that a return to high inflation and high interest rates is impossible? The "inflation is eliminated like small pox" mantra is similar to the "property never drops in price" mantra.

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What makes everyone so sure that a return to high inflation and high interest rates is impossible? The "inflation is eliminated like small pox" mantra is similar to the "property never drops in price" mantra.

Independence of the bank of england should prevent this however independence can be reversed.

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The high inflation environment that has been evident before in previous corrections has helped the poor unfortunate ftbs who bought in at or around the peak to recover that little bit quicker.

Wages caught up a hell of a lot faster in the past than they are ever likely to now in this sham of a low inflation environment we are tricked into beleiving exists.

The only consolation to all this is the fact that in previous booms investors did not make up as higher percentage of transactions as they have done this time.

The ones who will mainly get burned this time are the ones who deserve it the most as there are thankfully very small numbers of ftbs now in the market in comparison to the past booms.

But the recovery for people who bought when prices were at an all time high is going to make the negative equity of the past look like childs play.

I personally think that we are looking at negative equity of more than ten years or more before prices ever get this high again.

Its gonna make previos booms look like a piece of cake and could well break the back of this country for the best part of a decade.....................

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Note the 3 big falls in this ratio. Not caused by incomes falling!!!!!

This time things are different.

Yeah, it's a new paradigm, the old rules no longer apply, this time things are really different.

"On a balmy day last April [1999], Craig A. Winn, a onetime housewares salesman, momentarily became a dot-com billionaire. As the stock in his e-tailing startup, Value America Inc. (VUSA), ascended from its initial public offering price of $23 a share to a giddy high of $74.25 on Apr. 8, 1999, it became clear that the charismatic entrepreneur had tapped into the mind-set of the New Economy. Investors flocked to his idea of a ''Wal-Mart of the Internet'' where shoppers could order jars of caviar along with their gas barbecues or desktop computers. And why not? Winn had already signed up some big-time investors, including Microsoft co-founder Paul Allen, financier Sam Belzberg, and FedEx Chairman Fred Smith, whose names added cachet to the venture.

When the stock settled down that day at $55 a share, the three-year-old, profitless company was valued at $2.4 billion. Yet the 45-year-old Winn maintains that he was overcome with melancholy as he watched shares trade that first day. ''I felt fear and anguish,'' he said recently. ''I believe the company was genuinely worth the IPO value. When the stock shot up to three times the IPO price, I recognized that this was not reasonable. You are never closer to your greatest failure than when you are at the moment of your greatest success. I was very humbled by it.''

Winn's unease was prescient. In the 12 months since the IPO, Value America has gone from euphoria-inducing heights to a struggle for survival. In late March, auditors expressed doubt that the company could survive as a going concern. Nearly half of Value America's 600 employees have been fired. With the stock now trading at $2 a share, investors have lost millions. The obligatory shareholder class action has been filed. And Winn, founding CEO and entrepreneur extraordinaire, has been ousted by an all-star board that includes Fred Smith, former Newell Rubbermaid CEO Wolfgang Schmitt, and celebrated headhunter Gerard R. Roche. ''A year ago,'' bemoans one insider, ''we were infallible. Now, it's a complete crash and burn.''

How things are so different.

Edited by BuyingBear

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Independence of the bank of england should prevent this however independence can be reversed.

But if the pound drops 15% what's the Bank of England going to do about?

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Could you change this include morgage cost based on historic interest rates/Inflation? Ie average cost of servicing an average morgage against average earnings?

quality...

I see what you mean.. that would allow the arguments that it is more affordable now because of interest rates to be squashed once and for all..

I have always thought that going for a 25 year loan because IR's are low now would be a triffle stupid.. Infact I would say that no intelligent argument can ever be put forward to support it as I am sure you will agree.

but the graph would show aht happens when IR's change.. seeing the cost not following cost peak.. but the massive cost that would have followed the last boom...

christ..

that would be the best bear tool, perhaps ever....

Well apart from the fact prices are dropping fast all over..

Moose.. I have thought you a bull before..

Welcome to our side. :)

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But if the pound drops 15% what's the Bank of England going to do about?

Nothing at all, currency stability is not within its remit.

The only exception is that depreciation of sterling is an inflationary pressure that could result in increased interest rates.

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What makes everyone so sure that a return to high inflation and high interest rates is impossible? The "inflation is eliminated like small pox" mantra is similar to the "property never drops in price" mantra.

I know, but its the same every time.

there has never been a boom without a bust. Not once.

but memories are short..

I rmember the last boom bust in property.. that everyone was saying exactly the same.. Exactly the same..

They said the same in the dot com shares..

Does anyone remember the classic cars?? that was splendid.. e-type's going for £200,000.. that was a solid for ever..

These markets wrok.. get very carried away.. slow..

Investors get bored..

then something else gets going.. the investors move there..

The "Last man standing" is not theory, it is fact.

It is how markets work.

Speculation in a medical company working on a new cancer drug is speculation.

If they suceed they are worth more. they have produced something.. they may fail.. If they could not fail they would not appreciatte.. they would be worth peak already.

speculation in property is speculating that someone is prepared to pay what you need, or capable if doing so..

what it has given us is 1 new property for every 2.1 new person in the country..

we were 2.76 people to every home at the last peak..

2.6 at the bottom of the crash..

and with current building speeds the property per person ratio is better then ever..

Result

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3.5 times earning is too high now since MIRSA has been removed and we get all these stealth taxes and regulations stop us from doing our own repairs. 3 times income would be the adjusted figure I thinks

Edit

no it's 2.75 income as i forgot about pensions

Edit again

changed my mind again. it's 2.50 time as petrol and gas has shot up

Edited by Justice

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Interesting that if you extended this graph to the present day, it would be the first time we have seen house prices reach a peak and then plateau. A new paradigm perhaps?

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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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