Penny Drops At Home

[MarkG]

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.

If you're an idiot who wants to go bankrupt.

On the other hand, if you're smart, you'll realise that low wage inflation will make debts much harder to pay off, and won't borrow large sums of money to buy overpriced crap.

[Bear Goggles]

I had a similar discussion today about income multiples and houses that my parents' generation bought with average wages.

I have a question though.

Should an average wage buy an average house?

Okay, I know in a meritocratic and just society where hard work is properly rewarded it should. But doesn't the fact that the average earner can't afford the average proerty just reflect a widening gap between rich and poor?

Whether the gap is created by wealth tranfer between generations or big city bonuses and globalisation deflating unskilled wages, perhaps even with a crash the average earner will be priced out by historical standards.

Just a thought.

[Oscar_Goldman]

I'd say that depends on your definition of rich and poor.

I have a substantial sum saved/invested, an above average salary and education.

Others have one potential large asset financed by huge debt linked to the interest rate.

I should be able to afford an average property (2 bed terrace?), instead all I can afford is a tiny one bed flat in crime-infested drug haven at four times my salary.

The barometer of common sense tells me that's not good value for my hard-earned cash.

[CrashedOutAndBurned]

My Parents sustained their property on a single salary after they started a family. I told my mother that Dad would have needed a salary of about 70k if they wanted to do that nowadays based on current prices. He never earned more than 26k, retiring early in the mid-90s.

Even modestly paid boomers living what they probably thought was a fairly humble life compare so much of their generation lived like kings compared to today's young people.

Edited March 5, 2007 by CrashedOutAndBurned

[misfit]

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?

Thank you for a refreshingly honest post. I agree there is a growing divide.

I understand completely and I have been speaking to a few old schoold and college friends recently. One of friends bought a 2 bed house a few years ago in Knutsford for approx 180K. Both he and his girlfriend are ex public school and educated to degree level. Last year they had a child so dropped one income and they have started to struggle. If people like this are struggling then I am not surprised the so called ordinary workers can not buy at the bottom of the pile. It seems massively unfair if you ask me and I am in the former bracket rather than the latter so even though it is not affecting me I see lots of people who are affected and some work very hard but for little money.

[Als]

Lol! I just remembered who Oscar Goldman was. Great nickname Oscar.

[steve99]

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?

You never know, if the banks had the same savings and lending criteria now as they did then we might well have similar house prices visavis wages, given a big financial crash the banks may well head in that direction, regardless of the interest rates. The monetry system and banks are 100% the reason for current set of circumstances, and I see it as a conspiricy to get their hands on more property and assets in the long run, the buyers of the last few years will be the ones paying of course, those who hold off may end up as the few winners. I think too many people on this site who claim to be 'Bears' dont actualy realy believe there will be crash, weve been waiting so long, however I realy belive that when it happens it will be much bigger than the early 90's crash.

[Orbital]

A couple on average wage should easily be able to afford an average house, especially when we factor in a deposit - two decent earners should be able to save up tens of thousand over a few years - sadly most would chose to spend it on a holiday and home entertainment system, but thats by the by.

And this is why houses are still selling. What is happening is that singles with no savings are competing with relatively well off couples. Now 20 or 30 years ago etc, there werent so many such couple around, women were 'supposed' to stay at home, but now they want a career too (and why not). It makes sense to me that nice desirable houses will go for the most that people can afford to pay, that competition, thats capatilism.

So yeah, it makes sense that a single doctor is nolonger going to breeze on to the housing market when competing against a 'dinky' couple. It may suck, but its reality. I think people need to wake up and realise that society has moved on, times have changed. We live in a time where both parties have to work and a single person wont be able to afford a nice family home easily (but why would they want one?!).

I have no problem with the feminist movement, Id be happy to sponge of the missus lol (just joking - she might read this!), but it sometimes seems that its one of those 'be careful for what you wish' type things. Sadly we are now in a situation where women have to work for a family to be 'competitive'.

If a crash did come along, wow I could team up with the misses and buy a mansion? But how many others are in my position too, at the end of the day we will all be competing against each other for the nicest houses. If you want to compete we'll have to save harder, maybe that means doing away with foreign holidays, and flash gadgets, but hey our parents seemed to cope without that stuff... isnt this what's really changed - amodern lifestyle is actually pretty expensive and we dont realise we cant afford it. I know I cant - so I chose to just have the house.

[Wuluf]

If you want to compete we'll have to save harder, maybe that means doing away with foreign holidays, and flash gadgets, but hey our parents seemed to cope without that stuff... isnt this what's really changed - amodern lifestyle is actually pretty expensive and we dont realise we cant afford it. I know I cant - so I chose to just have the house.

A consumer slowdown would lead to an economic slowdown.

Economic slodown would lead to a loss of jobs a contraction in the neutral growth rate.

This would in turm make it harder for peopole to service debt.

[IWantItNow]

A couple on average wage should easily be able to afford an average house, especially when we factor in a deposit - two decent earners should be able to save up tens of thousand over a few years - sadly most would chose to spend it on a holiday and home entertainment system, but thats by the by.

Give me a choice between owning a property and living life then I choose the latter. It makes me sad the thought of saving thousands to find that inflation (HP or otherwise) has made them worthless and to boot I've not made the most of my time on this earth by enjoying myself whether that through materialistic possessions or seeing the world.

We're so bogged down with life's burdens of tax, money, society's ills etc that the least you owe yourself is a holiday or two.

[MarkG]

two decent earners should be able to save up tens of thousand over a few years

And, as we've pointed out to you many times before, 'two decent earners' would be absolute ******tards to 'save tens of thousands over a few years' when house prices are rising by 20k a year.

If house prices are rising that fast, you either buy or wait for a crash. You don't save for years and then pay more for a house than it would have cost before you started saving.

Unless you're a ******tard, anyway.

[Oscar_Goldman]

Orbital - thanks for the lecture on the 'new paradigm'

A couple of points.

1. Were women working in the 90s? I seem to recall they were. So I guess the massive falls in house prices had to be to do with something else?

2. If it's all to do with joint salaries, why are banks lending higher multiples than ever?

3. If people are piling all their money into houses, why is consumer spending and credit card debt (now becoming MEW) so high.

It's all about debt, stupid...

[subsidiser]

Thank you for a refreshingly honest post. I agree there is a growing divide.

I understand completely and I have been speaking to a few old schoold and college friends recently. One of friends bought a 2 bed house a few years ago in Knutsford for approx 180K. Both he and his girlfriend are ex public school and educated to degree level. Last year they had a child so dropped one income and they have started to struggle. If people like this are struggling then I am not surprised the so called ordinary workers can not buy at the bottom of the pile. It seems massively unfair if you ask me and I am in the former bracket rather than the latter so even though it is not affecting me I see lots of people who are affected and some work very hard but for little money.

Oooh poor little public school swots, they deserve so much more. Lets start a charity to help them. Oh no we did that already - it was called Eton.

So what if they can't afford it? Somebody can, thats why prices are going up.

[the gardener]

A couple on average wage should easily be able to afford an average house, especially when we factor in a deposit - two decent earners should be able to save up tens of thousand over a few years - sadly most would chose to spend it on a holiday and home entertainment system, but thats by the by.

And this is why houses are still selling. What is happening is that singles with no savings are competing with relatively well off couples. Now 20 or 30 years ago etc, there werent so many such couple around, women were 'supposed' to stay at home, but now they want a career too (and why not). It makes sense to me that nice desirable houses will go for the most that people can afford to pay, that competition, thats capatilism.

So yeah, it makes sense that a single doctor is nolonger going to breeze on to the housing market when competing against a 'dinky' couple. It may suck, but its reality. I think people need to wake up and realise that society has moved on, times have changed. We live in a time where both parties have to work and a single person wont be able to afford a nice family home easily (but why would they want one?!).

I have no problem with the feminist movement, Id be happy to sponge of the missus lol (just joking - she might read this!), but it sometimes seems that its one of those 'be careful for what you wish' type things. Sadly we are now in a situation where women have to work for a family to be 'competitive'.

If a crash did come along, wow I could team up with the misses and buy a mansion? But how many others are in my position too, at the end of the day we will all be competing against each other for the nicest houses. If you want to compete we'll have to save harder, maybe that means doing away with foreign holidays, and flash gadgets, but hey our parents seemed to cope without that stuff... isnt this what's really changed - amodern lifestyle is actually pretty expensive and we dont realise we cant afford it. I know I cant - so I chose to just have the house.

I agree with you orbital. Having said that, what you've said will be unpopular here. People here need someone to blame, banks, Gordon Brown etc. The current situation is caused by the individual decisions of millions of people reacting to the circumstances they find themselves in / put themselves in.

Be prepared for a lot of flak for speaking the truth.

[Oscar_Goldman]

I think he's more likely to take flak for talking cobblers.

Weren't you lot around in the 90s?

[MarkG]

I think he's more likely to take flak for talking cobblers.

Indeed. Can _ANYONE_ explain why it makes sense to save 10,000 pounds a year towards a deposit when house prices are increasing 20,000 a year, and then buy when the house is twice as expensive as it was when you started saving?

No, didn't think so.

[Pablo-silver or lead?]

All a sustained period of low I/R’s (by historical standards), the constant slackening of lending criteria and failure the to price in risk over the last 5 years or so has done, is cause HPI that is not underpinned by fundamentals (wages/yields).

In their rush to join in/not get left behind people have taken on debts that relative to their incomes are at historical (and unsustainable) highs. This is an artificially cheap debt fuelled boom.

Due to the size (not the current cost) of the debts, I/R’s, lending criteria and the price of risk does not need to revert to anywhere near the mean, to cause the bust which will follow.

If anyone believes that the UK will remain immune to the coming storm from the west is deluding themselves.

[misfit]

Oooh poor little public school swots, they deserve so much more. Lets start a charity to help them. Oh no we did that already - it was called Eton.

So what if they can't afford it? Somebody can, thats why prices are going up.

I said they were struggling I did not say they could not afford it. They just need to cut back a little. I never said they deserved more. There is no need to show any contempt for those with a good education as you only make yourself look foolish.

The point I was making was that if a pair of ex public school pupils with good qualifications are having to cut back to afford a a small 2 bedroom house then it is not surprising that the ordinary working man/couple can not get on the housing ladder thereby adding proof to the previous statement. I consider myself fortunate to be born into an area where qualifications and good jobs are mandatory but I have known associates where this is not the case. They work hard but find themselves priced out. This seems a little unfair and I was adding my support to this growing divide.

[MarkyB]

Indeed. Can _ANYONE_ explain why it makes sense to save 10,000 pounds a year towards a deposit when house prices are increasing 20,000 a year, and then buy when the house is twice as expensive as it was when you started saving?

No, didn't think so.

There is no point is there, unless... you catch the prices on the way down with a healthy deposit and jump a rung of the ladder! (MY PLAN) ;-)

[ChinaReader]

There is no point is there, unless... you catch the prices on the way down with a healthy deposit and jump a rung of the ladder! (MY PLAN) ;-)

This all makes it sound rather like a board game - roll a six, skip a square, go directly to Mayfair.

Just ever so slightly surreal.

[frugalista]

Indeed. Can _ANYONE_ explain why it makes sense to save 10,000 pounds a year towards a deposit when house prices are increasing 20,000 a year, and then buy when the house is twice as expensive as it was when you started saving?

No, didn't think so.

Money is supposed to be a store of value and a medium of exchange.

Unfortunately its role as a store of value has been trashed by asset inflation. The central bank should target asset inflation because reasonably-priced assets are critical to enabling people to retire. This goes for both property and the stock market.

frug.

[Europa]

Indeed. Can _ANYONE_ explain why it makes sense to save 10,000 pounds a year towards a deposit when house prices are increasing 20,000 a year, and then buy when the house is twice as expensive as it was when you started saving?

No, didn't think so.

That's just it; not everyone did. A lot of first time buyers who bought around 03/04/05 realised that prices were rising significantly, and chose to jump in with 100 per cent mortgages. I remember they were thoroughly mocked on this site.

It was the uber-bears who sat back and saved up. Today, they continue to count the saved pennies in rented accomodation while the "sheeple" sit back in their homes, cushioned by accumulated equity.

You've been a member of this site for some time, Mark; learnt anything?