Penny Drops At Home

[Oscar_Goldman]

I was sat down with my family last night and as my little brother has just bought a place property was on the agenda

I asked my dad about my parents first house in 1973.

He was a trainee engineer on £24 a week - around £1200 a year and their first place was £2500 - a two bedroom semi.

My brother is a junior doctor on £36k ish and has just bought a two bedroom semi in the same area for 175k. A real stretch.

We're talking the North West here - not London, where I'm living at the moment.

I think that says it all really.

I read some awful crap on here from people talking about ' a new property owning class' when they don't seem to realise that unlike the blue-bloods they aspire to be, they don't own their 'portfolios' the bank does. It can't last.

[Sinking Feeling]

I was sat down with my family last night and as my little brother has just bought a place property was on the agenda

I asked my dad about my parents first house in 1973.

He was a trainee engineer on £24 a week - around £1200 a year and their first place was £2500 - a two bedroom semi.

My brother is a junior doctor on £36k ish and has just bought a two bedroom semi in the same area for 175k. A real stretch.

We're talking the North West here - not London, where I'm living at the moment.

I think that says it all really.

I read some awful crap on here from people talking about ' a new property owning class' when they don't seem to realise that unlike the blue-bloods they aspire to be, they don't own their 'portfolios' the bank does. It can't last.

What size of deposit did he put down?

[Pappabear]

Back in 1984, My fiancee and I were just ordinary factory workers, however we were able to buy a 2 bed terraced house for 19K, our joint income at the time (ex OTE), was about 7K per year

This was also the case for alot of our friends, who were able to buy quite easily.

The same house is now going for 125K, that means on the old 3X salary basis, a couple needs an joint income of about 40K plus to qualify

Now in my area, (South West), there is no way that the ordinary couple earns that much, typically in this area the ordinary factory worker is lucky to clear 16K (that is if there were any factories left), call centres and tourism employment typically offer less then that

Point is, no way can the ordinary worker now afford an ordinary, average house, you need to earn, what is in this area, an above average salary, to buy something at the bottom of the pile

I feel sorry for the up and coming generation, My generation were lucky enough to be born at the right time, sat on their backsides, watch the equity grow for doing nothing and now pat themselves on the back for being clever property tycoons

I fear that there will be (or already is), a growing divide between those who own property and those who do not.

I wonder how all todays boomer "property tycoons" would have felt, if we had to face today's situation, back in the 80's?

[Oscar_Goldman]

I wouldn't worry about the up coming generation, I'd worry more about the equity in your property. This won't last - it never does. It's a cycle. But unfortunately it's been allowed to get more out of hand than ever. Prices are higher and people are behaving more stupidly then ever.

[tahoma]

I wouldn't worry about the up coming generation, I'd worry more about the equity in your property. This won't last - it never does. It's a cycle. But unfortunately it's been allowed to get more out of hand than ever. Prices are higher and people are behaving more stupidly then ever.

Welcome Oscar. Posts like yours at the top of the thread are a reminder of how utterly ludicrous the so-called 'market' is.

In fact, it is just a speculatory goldrush with the typical cheerleaders twittering on about their prescient involvement in the action. They want to believe the money they have 'made' is due to their sheer intelligence and guts, rather than just being sucked up in a thermal of easy money.

If houses only ever go up, surely the stories of negative equity in the 90s are a figment of people's imagination.

[Killer Bunny]

Oscar, are you the $6Mn man's boss? Must be around $1Bn by now, surely?

[Lionel Richtea]

I was sat down with my family last night and as my little brother has just bought a place property was on the agenda

I asked my dad about my parents first house in 1973.

He was a trainee engineer on £24 a week - around £1200 a year and their first place was £2500 - a two bedroom semi.

My brother is a junior doctor on £36k ish and has just bought a two bedroom semi in the same area for 175k. A real stretch.

AND

Back in 1984, My fiancee and I were just ordinary factory workers, however we were able to buy a 2 bed terraced house for 19K, our joint income at the time (ex OTE), was about 7K per year

This was also the case for alot of our friends, who were able to buy quite easily.

I imagine that these posts are intended to show that the current situation of prices paid of 4-5x income or whatever is somehow anomalous and a deviation from long term "fundamentals".

However, going from these three anecdotes, 2007 is simply an extrapolation of how properties have become more expensive over a 30-odd year period: from ~2x income in 73, to ~3x in 84 to ~4.5x in 07. The type of work and type of properties is irrelevant.

This doesn't sound like 07 is part of a bubble. Sounds more like the result of a very stable, long term trend of properties getting more expensive for whatever reason.

So, unless 73 and 84 were the peaks of two booms (or I've made a booboo: quite possible), please exploin.

Edited March 4, 2007 by Lionel Richtea

[dnd]

I fear that there will be (or already is), a growing divide between those who own property and those who do not.

It's already here (see sig)

[neilrich]

However, going from these three anecdotes, 2007 is simply an extrapolation of how properties have become more expensive over a 30-odd year period: from ~2x income in 73, to ~3x in 84 to ~4.5x in 07. The type of work and type of properties is irrelevant.

This doesn't sound like 07 is part of a bubble. Sounds more like the result of a very stable, long term trend of properties getting more expensive for whatever reason.

So, unless 73 and 84 were the peaks of two booms (or I've made a booboo: quite possible), please exploin.

Like the economy, the housing market is cyclical, always has been always will be! Anyone can pick particular dates on the timeline, different points in the cycle, you need to look at the bigger picture!

I see a bubble, the top of the present cycle.

~3x income 1970

~3x income 1977

~3x income 1982

~2.7x income 1995

~5.5x income 2006

[deus ex machina]

Richtea,

Don't be silly.

The multiplier should be like for like. Until relatively recently ( i.e before the beginning of the current boom cycle) the banks etc were offering 3 x salary and in the case of joint applications it was 3 x the greater PLUS the other. The average house price in 1982 was approx 24,000 with an average income of approx 6-8,000.Currently, the average income seems to be 25,000 so where should that take us?

Intrinsic worth is one thing, inflation is another but the current distortion is totally divorced from the value of property and has rather more to do with the economics of pyramid selling.

[Guest Charlie The Tramp]

He was a trainee engineer on £24 a week - around £1200 a year and their first place was £2500 - a two bedroom semi.

This is where the HM has gone completely out of kilter. In 1970 I paid £3.95k for a 2 bed masionette just over the Greater London Borders where your Parents paid £2.5k for a two bed semi in the North West 3 years later.

Today that maisonette would sell for £120k probably a lot less than that same two bed semi.

[Pappabear]

Fact is, as it seems 5 x Salary is becoming the norm, it means the cost of mortgage debt is a higher % of income, then it was under the 3x salary rule> At what point is the % of income spent on mortgage repayment deemed to be "too high".

[Dubai]

From the Daily Telegraph, 3rd january 2007.....

"This comes days after statistics showed that the average homebuyer is borrowing 6.5 times their salary when taking on a new property."

and from 30 December 2006:

http://www.telegraph.co.uk/news/main.jhtml...30/nhomes30.xml

A long way from 4.5 x.

The bottom line is that when the average income earner cannot afford the average house, there will be a correction. Unless of course we're hurtling back to the days of a Super Wealthy Aristocracy which owned nearly everything and was served by serfs, who made up the other 99% of the population.

There are those that would love that, and will have convinced themselves that their financial savvy deems them worthy to rule.... when of course in most cases, it's just pure luck.

Is there a spell checker in the house??!!

[Casual Observer]

Richtea,

Don't be silly.

The multiplier should be like for like. Until relatively recently ( i.e before the beginning of the current boom cycle) the banks etc were offering 3 x salary and in the case of joint applications it was 3 x the greater PLUS the other. The average house price in 1982 was approx 24,000 with an average income of approx 6-8,000.Currently, the average income seems to be 25,000 so where should that take us?

Intrinsic worth is one thing, inflation is another but the current distortion is totally divorced from the value of property and has rather more to do with the economics of pyramid selling.

If the multiplier was always constant i.e. the same multiplier in 1975 (IRs 11%) as 2004 (IRs 3.5%), what do you think would happen to the excess liquidity this would allow in the low IR periods?

[Oscar_Goldman]

My other point - Mr Richtea. Is in the detail, not just the salary multiple.

My dad still training at that point - he was 21! Even when he qualifed he wasn't on much more than the average salary My brother is 28, and a doctor on MORE than the average for the region - more than the median salary for the country and the place is still more than 4x his salary.

Keep looking at the multiples and you'll keep missing the point.

[Lionel Richtea]

My other point - Mr Richtea. Is in the detail, not just the salary multiple.

My dad still training at that point - he was 21! Even when he qualifed he wasn't on much more than the average salary My brother is 28, and a doctor on MORE than the average for the region - more than the median salary for the country and the place is still more than 4x his salary.

Keep looking at the multiples and you'll keep missing the point.

Nope - we're valuing assets, it's all about the multiples (~yield via a comparison with rentals) if we're having a true "fundamentals" discussion. Unless you're suggesting that people in the better jobs bought better houses in the 70's... which is irrelevant because pay is a proxy for "better" and so we're back to multiples: people buy with on a higher multiple these days and those who don't pay the multiple get a "worse" property.

All I can glean from your post is that your dad could buy a nice house in 73 at 21 whilst unqualified which is explained on credit terms alone: he could access sufficient money to buy his house because the multiple was much lower.

Right now, your brother could have bought the same house a 70s junior doctor would have bought back then (ceteris paribus) if he had paid the same multiple as the average buyer is paying in 2007: that's the point.

Edited March 4, 2007 by Lionel Richtea

[Lionel Richtea]

Richtea,

Don't be silly.

The multiplier should be like for like. Until relatively recently ( i.e before the beginning of the current boom cycle) the banks etc were offering 3 x salary and in the case of joint applications it was 3 x the greater PLUS the other. The average house price in 1982 was approx 24,000 with an average income of approx 6-8,000.Currently, the average income seems to be 25,000 so where should that take us?

Intrinsic worth is one thing, inflation is another but the current distortion is totally divorced from the value of property and has rather more to do with the economics of pyramid selling.

Nice ad hominen start, DeM. So much for my adding self-deprecating wording in my posting. Could I just rebut by adding that you smell?

[Lionel Richtea]

Like the economy, the housing market is cyclical, always has been always will be! Anyone can pick particular dates on the timeline, different points in the cycle, you need to look at the bigger picture!

I see a bubble, the top of the present cycle.

~3x income 1970

~3x income 1977

~3x income 1982

~2.7x income 1995

~5.5x income 2006

Indeed... just like you have done there. Although I would aver that the picture described on this thread is quite "large".

Where you look depends on your investment / family growth horizon, perhaps?

[Lionel Richtea]

If the multiplier was always constant i.e. the same multiplier in 1975 (IRs 11%) as 2004 (IRs 3.5%), what do you think would happen to the excess liquidity this would allow in the low IR periods?

Absolutely. So, if you think that we're in a long-term low inflation and low interest rate environment, then you should fill your boots an gear up. Isn't that what makes it "different this time".

[subsidiser]

Absolutely. So, if you think that we're in a long-term low inflation and low interest rate environment, then you should fill your boots an gear up. Isn't that what makes it "different this time".

HOLD ON A MINUTE ! There's just one thing wrong with you're argument....

You describe yourself as a Bear.

Shurely Shome Mishtake!!!?

[homeless]

the average salary dont buy the average property.

infact the average salary dont buy any property at all

[Te Mata]

HOLD ON A MINUTE ! There's just one thing wrong with you're argument....

You describe yourself as a Bear.

Shurely Shome Mishtake!!!?

I've been wondering about that for months

[ParticleMan]

Back in 1984, My fiancee and I were just ordinary factory workers, however we were able to buy a 2 bed terraced house for 19K, our joint income at the time (ex OTE), was about 7K per year

:

The same house is now going for 125K, that means on the old 3X salary basis, a couple needs an joint income of about 40K plus to qualify

Is the factory still a viable business?

[Pappabear]

Is the factory still a viable business?

Significantly downsized, no more manufacturing, just a box shifter now

[ParticleMan]

Significantly downsized, no more manufacturing, just a box shifter now

... and probably more "valuable" at present as an apartment complex than as a going concern.

This is precisely what is wrong with asset price bubbles and why this most recent bubble will end in a deep recession.