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Ahhhh! House Prices Are About Right?!


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HOLA441
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HOLA442

Sorry I am in a silly mood tonight, I am being ironic I hope but maybe its closer to the truth.

If a young couple of Grads leave uni with 30k of debts each thats 60k

Where do they find the money to save a deposit, buy a house, have a baby with one of them giving up work.

As a Tory by making sure that the UK protects its jobs, and its people. Making sure people who work earn a decent living wage and do not compete against illegal or immoral workers.

But we have a Labour party in office, the answer is this.

The drones of hive (Worker Bees) are not tasked with reproduction, they are tasked with the job of keeping the hive.

Reproduction and education is for the elite, particularly the political elite.

Why educate workers children when you can breed the ignorance out.

The writing is on the wall, all the cabinet and MP's in the Labour party have voted for crap schools for workers children, slating private education for the population, whilst sending their own to private schools.

Edited by laurejon
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HOLA443

The reason I say Nationwide and Halifax are not the mean average is because the land registry is just that, the mean price. The price from Nationwide, Halifax and Land Reg are widely different!

Jason – Ah, I see what you mean. So I did a quick comparison of the different indices to test the idea that the HBOS and Halifax might have their weights adjusted to reflect the median price – and it looks like they do! The red and purple curves follow the green LR median, with Nationwide doing a little better, and then about 20% above we have the orange LR mix-adjusted following the black LR mean. :)

rk3j88.jpg

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HOLA444
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HOLA445

erm. . .you're getting confused here and your figures don't add up. How can the average salary of an FTB male (say about 30 if we take the old ftb av. age) be around 60% of the av. salary for all males in non-manual work if their salary as you suggests then plateaus???!! Surely the av. should then be skewed the other way for your mates??

If direct analysis is unavailable/complicated to run, we should resort to indirect indicators of affordability. There are many problems with direct approach here. Indeed, a) calculation of mean/median wages is methodologically different from the calculations of mean/median house prices. b. Is it house prices or the monthly debt service that matters more for the public? c)Wages do not represent the full household resources available for debt service. d) FTBs wage in the relation to the average wage is unclear and may differ with time, e. t. c. Lots of complications to make something of it.

Indirect analysis is however possible which should automatically “price in” all the complications above. Look, for a start, at these trends: 1) Rising age of FTBs 2) rising proportion of smaller houses (i.e. flats) among all newbuilds 3) shrinking proportion of larger houses (i.e. 4 bedroom hs) among all newbuilds

These patterns are all inconsistent with the hypothesis of stable affordability. First, FTBs clearly don’t behave as if the affordability was on its ‘97 levels. Second, the markets’ reaction is very peculiar.

I have not got the data but I would not be amazed if we had a rising proportion of smaller houses and a shrinking proportion of larger houses among all market transactions, which could have been another indirect prove in affordability trends.

This is a standard economic reaction – if a price of something goes up you consume less of this even if you still can actually afford this. Hence FTBs temporarily substitute their demand for housing with other things that can boost their well-being, like luxury items, holidays abroad or just larger bank accounts.

Edited by LazyDay
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HOLA446

Oh, back to the thread: Willing, average wages are NOT what you suggest - open your eyes and ears!

Aaaaaarrrrrghhhh!!!!

I thought we are supposed to have above average levels of IQ on this site?

1. I am NOT suggesting anything. The figures are from the graph page of this site.

2. I am NOT saying they are average wages for all, they are average wages for Non-Manual Male/Female

God I'm getting sick of explaining this same old line. . . .come on some of you guys, try to keep up!

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HOLA447

If direct analysis is unavailable/complicated to run, we should resort to indirect indicators of affordability. There are many problems with direct approach here. Indeed, a) calculation of mean/median wages is methodologically different from the calculations of mean/median house prices. b. Is it house prices or the monthly debt service that matters more for the public? c)Wages do not represent the full household resources available for debt service. d) FTBs wage in the relation to the average wage is unclear and may differ with time, e. t. c. Lots of complications to make something of it.

Indirect analysis is however possible which should automatically “price in” all the complications above. Look, for a start, at these trends: 1) Rising age of FTBs 2) rising proportion of smaller houses (i.e. flats) among all newbuilds 3) shrinking proportion of larger houses (i.e. 4 bedroom hs) among all newbuilds

These patterns are all inconsistent with the hypothesis of stable affordability. First, FTBs clearly don’t behave as if the affordability was on its ‘97 levels. Second, the markets’ reaction is very peculiar.

I have not got the data but I would not be amazed if we had a rising proportion of smaller houses and a shrinking proportion of larger houses among all market transactions, which could have been another indirect prove in affordability trends.

This is a standard economic reaction – if a price of something goes up you consume less of this even if you still can actually afford this. Hence FTBs temporarily substitute their demand for housing with other things that can boost their well-being, like luxury items, holidays abroad or just larger bank accounts.

Yep, I tend to agree. All the signs you point out tend to show unaffordable levels of HP and HPI.

The average non-manual worker wages I mention, however, seem to suggest otherwise. So what's going on?

Having slept on it I think I have an answer:

If the av. for wages were skewed beyond that of the av. for HPs then they could not be compared reliably. The averages for non-manual work will be heavily skewed beyond that of averages for HPs because while the overall averages for wages contain both the highest and lowest brackets (as do the averages for HPs), the averages for non-manual wages will discriminate against the lower bracket for wages but will tend to favour the highest bracket for wages. Quite simply, non-manual workers are likely to include all the highest earners but few of the lowest earners in the country, while the averages for HPs will include both the highest and lowest prices in the country. QED: the averages for non-manual wages and averages for HPs cannot be compared on a like for like basis with any reliability.

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HOLA448

If you look at each group, “manual” and “non-manual”, within the male full-time earners, then in 2005 the first group earns at about 77% of the average, and the second at about 118%. But these ratios have drifted a bit wider over the years, for example back in 1985 the ratios were 85% and 116%, an example of an inner trend.

You can get back to a “reliable” comparison of price to earnings by following the HBOS system and using the £30.5k “all male” figure in place £35.5k “non-manual male” one; although, as Jason points out, this mixes both median and mean measures in the same ratio.

Edited by spline
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HOLA449

First I've got flu (proper influenza, not a cold!) so I could be wrong but. . .

I've always based the 'There will be a crash' argument on the fact that HP's are way way too high for your average joe.

Then I came accross this, from the graph page of this site:

http://www.housepricecrash.co.uk/xls/AGWE%...d%20females.xls

Fair enough, the av. wage is 26K. Averages for manual and non manual are not given so I extrapolated them from previous ratios.

I then decided to look at a test case of an average single male looking for somewhere to live, both in 1997 and 2005. I decided he'd probably be looking for a flat based on lifestyle.

The results are really suprising.

Average wage for a Male in Non Manual work is £35.1K in 2005.

In 1997 it was 25.6K.

Applying the mortgage multiple of 3.5x to this gives:

1997 Mortgage value ~£90K

2005 Mortgage value ~£123K

One bed flats and maisonettes in our area are, guess what? Going for about 130K - on the face of it this seems a fair price and well within my 'average single male in non manual work', damn it!

Surely 35K cannot be right for an average male in non manual work? If you think about just how much non manual work now encompasses (estate agent, office junior, service industry etc.) surely this 35K figure must be way way off!!

So in our area of the SE house prices are fair for flats!!???? Surely not!? :(

B0ll0cks.

NEXXXT

Sorry...

High white collar wage = dogshit one bed flat. Where's the arguement?

A dog shit one bed flat should be affordable for 18 year old waiter, Jonny Whack-off.

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HOLA4410

B0ll0cks.

NEXXXT

Sorry...

High white collar wage = dogshit one bed flat. Where's the arguement?

A dog shit one bed flat should be affordable for 18 year old waiter, Jonny Whack-off.

Here we go again. . .

If we had a soceity where 9 out of 10 guys could afford to pay up to £1million for a property, and 1 in every 10 could afford to pay £1billion. If in that society you then had 2 types of housing available - squallid bedsits and mansions - and for every 1 mansion there were 10 bedsits.

Your £1billion in this world would buy you a squallid bedsit, and the market would be deemed 'fair and valued'.

You as an outsider to this world would look in and say "£1million for a bedsit? are you insane". But in that market YOU would be the insane guy as £1million would be a fair price - agreed?

Now imagine a more complex market with 3 types of earner. 2/10th's earn £1000pw, 7/10th's earn £10,000pw, and 1/10th earn £1,000,000pw. The market still has the 2 kinds of same property - squallid bedsits and mansions - in the same 1:10 ratio. Now, the competition for mansions is the same but because there is less competition at the bottom the value of squallid bedsits drops slightly. However, this drop isn't enough to bring it into the reach of the 2/10ths earning £1000pw without them really really streaching themselves to the limit. The really rich 1/10th start to see their mansions rise in price as the 7/10ths who had been living in squallid bedsits now see they too can over extend. The market now moves in cycles, but the 'fair' price for a squallid bedsit in this market is still only just below £1million. How you say when a significant chunk earn only £1000pw? Because the borrowing power of the remainder allows them to exploit the market and 'punish' the lower paid.

What I've tried to ask is in this thread is where the borrowing power of the better off (professionals) sits, and whether it is stable enough to re-price the market.

please read thread before posting in future.

Next!

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HOLA4411

Here we go again. . .

If we had a soceity where 9 out of 10 guys could afford to pay up to £1million for a property, and 1 in every 10 could afford to pay £1billion. If in that society you then had 2 types of housing available - squallid bedsits and mansions - and for every 1 mansion there were 10 bedsits.

Your £1billion in this world would buy you a squallid bedsit, and the market would be deemed 'fair and valued'.

You as an outsider to this world would look in and say "£1million for a bedsit? are you insane". But in that market YOU would be the insane guy as £1million would be a fair price - agreed?

Now imagine a more complex market with 3 types of earner. 2/10th's earn £1000pw, 7/10th's earn £10,000pw, and 1/10th earn £1,000,000pw. The market still has the 2 kinds of same property - squallid bedsits and mansions - in the same 1:10 ratio. Now, the competition for mansions is the same but because there is less competition at the bottom the value of squallid bedsits drops slightly. However, this drop isn't enough to bring it into the reach of the 2/10ths earning £1000pw without them really really streaching themselves to the limit. The really rich 1/10th start to see their mansions rise in price as the 7/10ths who had been living in squallid bedsits now see they too can over extend. The market now moves in cycles, but the 'fair' price for a squallid bedsit in this market is still only just below £1million. How you say when a significant chunk earn only £1000pw? Because the borrowing power of the remainder allows them to exploit the market and 'punish' the lower paid.

What I've tried to ask is in this thread is where the borrowing power of the better off (professionals) sits, and whether it is stable enough to re-price the market.

please read thread before posting in future.

Next!

I'm not sure if your 3rd para should be million and not billion? It's confusing otherwise.

You state an example where 9/10 of the people can afford 9/10 of the housing, that is sustainable.

I agree.

"Now, the competition for mansions is the same but because there is less competition at the bottom the value of squallid bedsits drops slightly. However, this drop isn't enough to bring it into the reach of the 2/10ths earning £1000pw without them really really streaching themselves to the limit. The really rich 1/10th start to see their mansions rise in price as the 7/10ths who had been living in squallid bedsits now see they too can over extend."

This next bit doesn't sit with me.

1) Mansion... competition the same

2) Value of Bedsits drops slightly

Some how leads to...

3) Therefore Mansions rise in price

To be honest I find your examples a little confusing, maybe it's just me.

Over extending yourself to buy now, is not the same affordability as typical buying five years ago.

Hence your original example where a typical high earner (white collar) can only afford property designed and built for medial workers.

What happens to medial workers?

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HOLA4412
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HOLA4413
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HOLA4414

All I can say is my friend and his girlfriend both earn about 25-30k each after a few years out of university, pretty average if you ask me around my area. They where easily able to get a mortgage of 160k and bought a very nice 2 bedroom house for that as FTB'ers.

Now it certainly is a different story for single people like me on the same wages, but hasnt it always been that way?

The only difference I see is we now have an internet forum to moan about it :)

Edited by zag2me
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HOLA4415

All I can say is my friend and his girlfriend both earn about 25-30k each after a few years out of university, pretty average if you ask me around my area. They where easily able to get a mortgage of 160k and bought a very nice 2 bedroom house for that as FTB'ers.

Now it certainly is a different story for single people like me on the same wages, but hasnt it always been that way?

The only difference I see is we now have an internet forum to moan about it :)

Yes but dont you know there is a housing shortage because more people are living by themselves these days, oh wait...

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HOLA4416

I'm not sure if your 3rd para should be million and not billion? It's confusing otherwise.

You state an example where 9/10 of the people can afford 9/10 of the housing, that is sustainable.

I agree.

"Now, the competition for mansions is the same but because there is less competition at the bottom the value of squallid bedsits drops slightly. However, this drop isn't enough to bring it into the reach of the 2/10ths earning £1000pw without them really really streaching themselves to the limit. The really rich 1/10th start to see their mansions rise in price as the 7/10ths who had been living in squallid bedsits now see they too can over extend."

This next bit doesn't sit with me.

1) Mansion... competition the same

2) Value of Bedsits drops slightly

Some how leads to...

3) Therefore Mansions rise in price

To be honest I find your examples a little confusing, maybe it's just me.

Over extending yourself to buy now, is not the same affordability as typical buying five years ago.

Hence your original example where a typical high earner (white collar) can only afford property designed and built for medial workers.

What happens to medial workers?

Yes, a bit of a confusing read, first day back at work after flu so apologies!

The idea was basically to try to show that the cost of something isn't the same as the value AND that the value is only worth as much as someone is willing to pay. The value of a flat costing £100K could actually be £1M, or it could be £10K, or it might really be £100K.

It also tries to show that markets punish the less well off, but that lower paid entrants to a market can boost prices beyond their level of affordability.

A fuller explanation:

Senario 1: Equal balance. Stable market as everyone can afford something they need. The lower paid guys can all afford bedsits. The higher mansions.

Senario 2: Restricted entrance. Cyclic market as not everyone can afford something they need but some will try to buy it anyway. The restriction starts off at the bottom with bedsits and at first doesn't affect mansions. This is because the easiest entrance for competitors is at the bottom. The 'Middle Paid' in this senario start off happy with their bedsit, but then see asparational 'Lower Paid' buying a few of the worst bedsits. The 'Middle Paid' can easily compete with the 'Lower Paid' on bedsits, and with huge advantage. However, they now start asking themselves why they shouldn't be able to afford mansions. A few streach themselves to buy mansions. The original 'stable' mansion price now starts to climb as delayed competition feeds through the market.

QED. Medial Worker loses to professional and gets held at the margin of the market.

You also need to think in generations.

30yr old professional can now afford first property. The equivalent age for a medial worker is (say) 45yr old.

By the time the professional is 60yr old and has kids, his equity has grown over 30yrs of repayments.

By the time the medial worker is 60yr old and has kids his equity has only grown over 15yrs.

The professional 60yr old can now afford to help his 28yr old kids onto the property ladder.

The medial 60yr old cannot offer the same to his kids as he has less equity.

Each generation the cycle tightens further and further, locking out the medial in favour of the professional - not a nice thought. The medial rents the professional buys :(

Edited by willing
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HOLA4417

Yes, a bit of a confusing read, first day back at work after flu so apologies!

The idea was basically to try to show that the cost of something isn't the same as the value AND that the value is only worth as much as someone is willing to pay. The value of a flat costing £100K could actually be £1M, or it could be £10K, or it might really be £100K.

It also tries to show that markets punish the less well off, but that lower paid entrants to a market can boost prices beyond their level of affordability.

A fuller explanation:

Senario 1: Equal balance. Stable market as everyone can afford something they need. The lower paid guys can all afford bedsits. The higher mansions.

Senario 2: Restricted entrance. Cyclic market as not everyone can afford something they need but some will try to buy it anyway. The restriction starts off at the bottom with bedsits and at first doesn't affect mansions. This is because the easiest entrance for competitors is at the bottom. The 'Middle Paid' in this senario start off happy with their bedsit, but then see asparational 'Lower Paid' buying a few of the worst bedsits. The 'Middle Paid' can easily compete with the 'Lower Paid' on bedsits, and with huge advantage. However, they now start asking themselves why they shouldn't be able to afford mansions. A few streach themselves to buy mansions. The original 'stable' mansion price now starts to climb as delayed competition feeds through the market.

Ahh that makes sense. Hope you see off the flu by the way...

What happens when prices rise to the point everyone is on the brink of what they can afford (this is where I think we are now)?

What happens beyond this point if their repayments increase out of their control(IR move up)?

They have to sell don't they?

But the only people who could have afforded it before can no longer afford the original price because they cannot afford the new repayments. Then the price has to come down to what can be afforded at the new IR.

Also I think I am much more willing to build a gaff than pay so much over the odds, but that's just me I guess.

.

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HOLA4418

I know several people with PhD's earnign around the £25K mark.......£35K is fantasy

Not what I'm arguing - Av. Mean is not the same as Median - Av. Mean must be used in this case as it is compared to av. Mean HP - read the f'ing thread - god I'm sick of repeating this. . . . :rolleyes:

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HOLA4419

Call me old fashioned, behind the times, a stick in the mud.

But a quarter of a million pounds to buy a two bed labourers cottage on the south coast.

Now I dont think that is sustainable.

How on earth a young couple can go to bed at night, and perform knowing they owe 250k beats me.

Maybe they dont, hence the low birthrate!!!.

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HOLA4420

Call me old fashioned, behind the times, a stick in the mud.

But a quarter of a million pounds to buy a two bed labourers cottage on the south coast.

Now I dont think that is sustainable.

How on earth a young couple can go to bed at night, and perform knowing they owe 250k beats me.

Maybe they dont, hence the low birthrate!!!.

Class!!!! :lol:

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HOLA4421
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HOLA4422

All I can say is my friend and his girlfriend both earn about 25-30k each after a few years out of university, pretty average if you ask me around my area. They where easily able to get a mortgage of 160k and bought a very nice 2 bedroom house for that as FTB'ers.

Now it certainly is a different story for single people like me on the same wages, but hasnt it always been that way?

The only difference I see is we now have an internet forum to moan about it :)

You are absolutely spot on. It seems to me that most whingers on this site are single people who expect to be able to buy a nice house on an average 1 person income. This has never been the case. 30 years ago when I first bought, 2 incomes were needed and yes we had kids but you know what, when the kids came along, my wife got a part time job to fit in with my job. We hardly saw each other during the week until the kids started school, but we made damn sure that we paid the mortgage, even when rates went up to 12% and it took half of our income to pay it each month. People who whinge on here think they are the only people in history to have things tough in the housing market. I wonder how much most of them spend each weekend pi55ing their money up the wall. Judging by most Saturday nights in my local High Street, about half the cost of an average 2006 mortgage.

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HOLA4423

You are absolutely spot on. It seems to me that most whingers on this site are single people who expect to be able to buy a nice house on an average 1 person income. This has never been the case. 30 years ago when I first bought, 2 incomes were needed and yes we had kids but you know what, when the kids came along, my wife got a part time job to fit in with my job. We hardly saw each other during the week until the kids started school, but we made damn sure that we paid the mortgage, even when rates went up to 12% and it took half of our income to pay it each month. People who whinge on here think they are the only people in history to have things tough in the housing market. I wonder how much most of them spend each weekend pi55ing their money up the wall. Judging by most Saturday nights in my local High Street, about half the cost of an average 2006 mortgage.

My sister bought 5 years ago by herself, round about 50K for a 2 up 2 down, she saved up about 2K to buy. She now earns maybe 3K(tops) more than she did then and her house is valued at 120K.

I earn significantly more than her, i have significantly more saved.

I earn significantly more than all my friends who all own 3 bed terraces/semis because they bought 5+ years ago. All on single wages. My friends and family ALL bought on single wages, some have kids and thier spouses dont work. ALL on a single wage because they bought over 5 years ago before it all doubled.

So for you to say its never been the case is absolute b*llocks.

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