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Michael Hunt

To Crash Or Not To Crash......

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average wage approx 20k single ,joint 35 to 40k . so single person 20k x4 +10k deposit =90k buys a studio in my hometown en9 - en10 . 40k x 4 + 16k = 176k buys anything from a 1 bed flat to a three bed house bottom line admittidely are we realy going to see a major crash or a slight correction?

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Perhaps this graph will help to clarify your thinking.

It's up to date to the end of 2005.

Major crash or slight correction?

House_Prices_to_Earnings.GIF

post-1529-1137270429.gif

Edited by BandWagon

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Perhaps this graph will help to clarify your thinking.

It's up to date to the end of 2005.

Major crash or slight correction?

going by the graph were looking at a major crash ! are we going to see this within the next 2 years or is going to be the case of 1 step forward 2 steps back zig zagging over a long timespan?

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going by the graph were looking at a major crash ! are we going to see this within the next 2 years or is going to be the case of 1 step forward 2 steps back zig zagging over a long timespan?

saw tooth all the way down me thinks (without economic shock)

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Funny thing those graphs!

It shows from 1952 but I presume in those days this was based on 1 person - ie the husband?

So these graphs show to me that a house purchaser (was 1 person now 2 people) should be paying realistically x4 amount as an average. I think the days of3x5 times salary are long gone. I would accept x4 single as acceptable but my wage of £24,700 means I can get £98,800 plus deposit.

This does not buy much - this is whats wrong!!!

I would pay 100K for a property - but not a crack den! My main arguement is some of the shit-holes they are selling at ludricous prices. I am not scared of spending 100K but I want valkue for money. But then people say I am expecting too much!!!

WE NEED DECENT MULTIPLES AND DECENT PROPERTY FOR THOSE MULTIPLES

TB

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The graph is based on Nationwide data, and shows average house prices over gross average earnings.

Reading through the blurb this is for individuals, not households.

Bear in mind that this graph is countrywide, I'd like to see a regional breakdown but haven't got the data to do it. But in London these ratios are probably quite a bit higher, while somewhere up North prices are probably more likely to avergae 2.5 times earnings.

In the last crash prices in London hit 8x salary, and fell to 4x before recovering.

Now I believe London is somewhere around 10x earnings, thats a long way to fall.

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average wage approx 20k single ,joint 35 to 40k . so single person 20k x4 +10k deposit =90k buys a studio in my hometown en9 - en10 . 40k x 4 + 16k = 176k buys anything from a 1 bed flat to a three bed house bottom line admittidely are we realy going to see a major crash or a slight correction?

Your figures are a little off. The average salary for full-time workers living in Epping Forest (EN9) is actually £31,242. So over £60,000 for a couple who both work full-time, and with a (perfectly affordable) 4 x joint income mortgage they can spend a quarter of a million.

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Looking at that graph and comparing it to previous cycles:

1. It does look like we are in for a major crash in house prices relative to incomes.

2. It is NOT convincing that we have seen the top in house prices for this cycle. Previous cycles show a flat period and then a final surge to the top. This cycle so far shows a flat period.

With the increasing number of "I'm fed up with renting" types it is conceivable that there will be a final surge in house prices before the real crash begins. The last bears throwing in the towel and buying is absolutely typical of what happens at the top of any market be it stocks, housing etc. The reverse happens at the bottom when the last bulls give up and sell. And then the market reverses.

So looking at that graph I consider there to be a reasonable chance that the next move is UP but that should be followed by a much larger move DOWN. Sorry to disappoint those getting impatient for a HPC but that's one of the possible scenarios that I see.

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Your figures are a little off. The average salary for full-time workers living in Epping Forest (EN9) is actually £31,242. So over £60,000 for a couple who both work full-time, and with a (perfectly affordable) 4 x joint income mortgage they can spend a quarter of a million.

Does that get you much in Epping? Hav`nt searched Rightmove, I ask`cos I used to live there.

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Your figures are a little off. The average salary for full-time workers living in Epping Forest (EN9) is actually £31,242. So over £60,000 for a couple who both work full-time, and with a (perfectly affordable) 4 x joint income mortgage they can spend a quarter of a million.

You need to factor in the additional costs of kids for these two full time workers. If they are to have kids and work full time as well their childminding costs could be considerable. One of the sad things of recent years is the the idea of mums looking after the kids full time is no longer an option.

My parents always talk about how my mum DECIDED that despite her university degree she would forego a career until we were teenagers. We lived in a large 4 bedroomed house. My dad was a university lecturer.

Those days have gone. Fair enough. But it annoys me when people of that generation fail to understand that things are different and more difficult for 20 and 30 somethings now.

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Graphs do need to be interpreted with some care - just looking at the current high and saying "it will go down to the average" or "repeat the low of 1995" can be misleading and, I think, overstates the size of the correction we should expect. People have been calling a crash since 2001 (look in the BBC web archives) based on what looked (at the time) like a 'high' price to earnings ratio, but, as we all know, prices have continued to rise to the present peak, and it's only now that the expected trend reversal is starting to look more convincing.

So one has ask why didn't it start earlier, and how has it been able to run up so high this time? The bit that was missing was the Steve Nickell affordability argument, i.e. that people have bid up the price of houses on the back of post-1992 lower interest rates, but, crucially, at a constant affordability (repayment to earnings ratio). The expected affordability stretch, which is traditionally evidence of a bubble in the housing market, appears only after about 2003 when the price to earnings ratio is already very 'high' by historical standards. This is not to say that high borrowing on the back of low cost money is a good thing (there are plenty of reasons why it's not, many posted here) but it does nevertheless support the price.

On this basis, it is clear that the apparent excess is really made up from *two* components: the bit that relies on low interest rates (properly supported, but will increase/decrease as rates go down/up, currently about 2.5% HPI for each 0.25% rate cut); and the bubble bit that will unwind under its own steam over a timescale of about 5 years. When the crash argument is corrected to include affordability, the predictions fit much better with the historical data price over the whole of the 1989-2005 cycle, and then if we projects out to (say) 2010 with 'no-change' assumptions for earnings growth and interest rates we get a post-bubble price to earnings ratio of about 3.8 to 4.0 and significantly higher than might be expected from just looking at the graph.

Still a crash/correction, but a bit smaller than many might expect.

Edited by spline

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In my humble opinion much of the HPI over recent years has been driven by a combination of fear and the internet/media. We look out on the world through the windows of our own limited experience and also experiences gained via a 'tsunami' of infotainment from tv, newsprint and the internet (24/7-365). The 'impression' I get is a country run by meglomaniacs, idiots, deviants and 'yes' men. Vast sums of tax payers money wasted on all manner of crackpot nulabour policies. A party that will pander to the vocal and say and do anything to keep their soiled hands on the levers of power. Given this view then a home of ones own becomes vital in order to have a space to insulate oneself from the madness.

e.g. http://www.timesonline.co.uk/article/0,,2089-1985978,00.html

[i am aware that the best idea may be to NOT read these stories and thus keep ones blood pressure down]

Back to HPI, assuming this thinking afflicts many then prices will/have risen such that any price is acceptable to secure a safe 'space' in a good area. Afterall what other option is there short of bailing out? Unfortunately not always an option for those that would dearly love to go because of 'commitments'. This option is fast fading in many English speaking countries due to our having exported our house price virus over there.

One must also not forget the contribution of the huge btl brigade and canny 'investor'. Given that people now realise that reliance on the government is futile they must now do what is necessary to protect their own financial futures and if that has a detrimental effect on the young and ftb's then that is unfortunate but people must first look to their own. (maybe this country should follow that policy)

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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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