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Gavin

Playing Devils Advocate

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Personally my whole reason d'etre on HPC is that the house price/salary ratio is out of wack. Its gone to high and will eventually come back down.

This would mean a price crash, or rapid wage inflation (which would mean interest rates rising and possibly a crash for over-extended borrowers in the short term).

On long term average multiples of 3.5x, this would suggest that the average wage of 26k would sporn average house prices in the range 80-120k instead of the current 160-200k.

BUT are we right about average wages?

It would seem churlish of us to doubt government statistics on inflation and comment on all types of other spin, if we also didn't doubt the statistics on average wages.

Could wages perhaps by stealth, or black market or another means be higher than we think?

Would they explain why people drive more 4x4s than 10 years ago, even ignoring the subject of debt?

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This would mean a price crash, or rapid wage inflation (which would mean interest rates rising and possibly a crash for over-extended borrowers in the short term).

Rapid wage inflation is out of the question because with the current perceived low IRs and the current mentality house prices would simply soar and soar.

I expect by mid Summer many unions will be demanding above inflation wage increases though.

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How much do you and your friends earn? There are many below average earners out there - though I certainly believe regionality is a factor - most of my friends working in Brighton/Hove earn sub £20K. On the other hand my London friends are on £40K+

In both cases, prices are out of proportion.

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Don't forget few people buy on a single income any more. We've had a sort of wage inflation through the rise of the dual-income family.

But on the other hand single living is on the up

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Guest

Rapid wage inflation is out of the question because with the current perceived low IRs and the current mentality house prices would simply soar and soar.

I expect by mid Summer many unions will be demanding above inflation wage increases though.

But prices soaring wouldn't happen, as IRs would have to rise to cover the wage demands, as Gavin points out.

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Guest Bart of Darkness
Would they explain why people drive more 4x4s than 10 years ago, even ignoring the subject of debt?

1.3 trillion pounds of debt is hard to ignore.

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Personally my whole reason d'etre on HPC is that the house price/salary ratio is out of wack. Its gone to high and will eventually come back down.

This would mean a price crash, or rapid wage inflation (which would mean interest rates rising and possibly a crash for over-extended borrowers in the short term).

On long term average multiples of 3.5x, this would suggest that the average wage of 26k would sporn average house prices in the range 80-120k instead of the current 160-200k.

BUT are we right about average wages?

It would seem churlish of us to doubt government statistics on inflation and comment on all types of other spin, if we also didn't doubt the statistics on average wages.

Could wages perhaps by stealth, or black market or another means be higher than we think?

Would they explain why people drive more 4x4s than 10 years ago, even ignoring the subject of debt?

I think low interest rates partly explain the out-of-place income multiples.

Another reason I reckon is because there have been a lot of property related 'cash' jobs done by sub contractors, which won't show up on the stats, but would disappear as the boom fades.

No it's all debt.

I read that the UK has 2/3rds of all EU credit card debt. I guess that counts as another factor.

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But prices soaring wouldn't happen, as IRs would have to rise to cover the wage demands, as Gavin points out.

Excuse me for being cynical but I think nothing will make the BOE raise UK IRs until Brown is in No. 10!

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Excuse me for being cynical but I think nothing will make the BOE raise UK IRs until Brown is in No. 10!

:lol:

Okay.

Let's hope we don't see any inflationary needs that would drive wage demands within that timeframe, then. Otherwise we can start kissing goodbye to our jobs...

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Let's hope we don't see any inflationary needs that would drive wage demands within that timeframe, then. Otherwise we can start kissing goodbye to our jobs...

Again, excuse me for being cynical but I think, IMPO, the ego is such that the whole country could go down the toilet just as long as he gets to be PM!

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The average wage used in the HBOS price to earnings ratio is by accident of history the mean of the ONS male full-time salary distribution. Presumably a “better” one could be found, but then any convincing historical comparison would be “messed up”, and, as any other measure would vary broadly in proportion to the official one, it wouldn’t really tell us that much more. But I am reasonably certain that the high price to earnings ratio of this peak relative to previous peaks can be explained by the current low cost of borrowing.

On the other hand, house owners do receive an extra “income” from HPI that is quite significant – apologies for yet another graph, but at least this one is from an earlier thread – for example, the ratio of HPI income to earned income turns out to be equal to YoY*(P/E). Plotting this also works nicely as a crash indicator (triggers when exceeds +1, nominal insanity ;)) but I was surprised that average income boost seems to be around 25—30%, and much larger and more sustained during the last five years or so. I agree with those posters above who say the apparent wealth washing all around us is probably down to borrowing secured against this extra income.

Income boost from house price inflation, 1 = 100%

fcnxva.jpg

Edited by spline

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Again, excuse me for being cynical but I think, IMPO, the ego is such that the whole country could go down the toilet just as long as he gets to be PM!

The country HAS gone down the toilet, it's just that the chain hasn't been pulled yet.

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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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