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Buffer Bear

David Smith Again

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http://business.timesonline.co.uk/tol/busi...icle2510942.ece

From The Sunday TimesSeptember 23, 2007

"PS: My reference last week to the fact that UK house prices are not 11 times average earnings, not much more than half that, brought a flood of responses, some quite rude. A disturbing number of people believe it. Let me set the record straight.

According to the Halifax, the house price-earnings ratio in June was 5.79. This is based on the Halifax’s average house price, £197,750, and its calculation for male full-time average earnings, just over £34,000, the traditional measure used to calculate the ratio.

Let me allow slightly higher numbers. Male full-time earnings were £30,763 in April last year. Uprating by 4% with the average earnings index gives £32,236. The government says average house prices were £211,341 in the second quarter, giving a ratio of 6.5. Taking male and female earnings, the denominator is £29,300 and the ratio just over 7.

How about median earnings? In April 2006 the median was £23,244 a year. To be statistically pure you need the median house price, £166,000 in England & Wales in 2006, on Land Registry data. That gives a 7.1 house price-earnings ratio. Against male earnings, £25,324, it is 6.5. These figures are high but they are well below 11. "

david.smith@sunday-times.co.uk

Well in London, I reckon it is near 10x earnings and no, I don't believe the average London salary is anywhere near 44k.

Edited by Buffer Bear

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He's trying to justify 7.1x as quite acceptable.

But I do agree with his figures on a UK wide median basis.

But we have to get back to 3.5x which means a 50% drop. Yet again, that 50% drop. Every graph and statistic gives us the 50% drop!

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I suspect the pool of workers taken for the data all worked in the Civil Service :lol::lol:

"Hey thats average, we wouldnt get out of bed for less than 60k and a couple of passports"

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Only seven! Phew that's alright then.

Sadly, one day I went on to Monster to look at average earnings for my local town. I found 80 jobs with specifies wages/salaries, the Average was £20,000. I live in a supposedly affluent town where most flats/houses are over the national average house price. I may be wrong but I think the average salary reported by Halifax may be a little optimistic are these verified with pay slips.

I was also lead to believe that the average wage was nearer £25,000 so very surprised by the £30,000 quoted for April last year. Are these figures verifiable as correct?

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Well hopefully we will be returning to 3.5x etc etc

"Figures from the Nationwide this week on house prices for August are likely to show a beguilingly modest fall in the annual rate of house price inflation, from 9.6% to 8.9%. "

http://scotlandonsunday.scotsman.com/busin...m?id=1519972007

Edited by Buffer Bear

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http://business.timesonline.co.uk/tol/busi...icle2510942.ece

From The Sunday TimesSeptember 23, 2007

"PS: My reference last week to the fact that UK house prices are not 11 times average earnings, not much more than half that, brought a flood of responses, some quite rude. A disturbing number of people believe it. Let me set the record straight.

According to the Halifax, the house price-earnings ratio in June was 5.79. This is based on the Halifax’s average house price, £197,750, and its calculation for male full-time average earnings, just over £34,000, the traditional measure used to calculate the ratio.

Let me allow slightly higher numbers. Male full-time earnings were £30,763 in April last year. Uprating by 4% with the average earnings index gives £32,236. The government says average house prices were £211,341 in the second quarter, giving a ratio of 6.5. Taking male and female earnings, the denominator is £29,300 and the ratio just over 7.

How about median earnings? In April 2006 the median was £23,244 a year. To be statistically pure you need the median house price, £166,000 in England & Wales in 2006, on Land Registry data. That gives a 7.1 house price-earnings ratio. Against male earnings, £25,324, it is 6.5. These figures are high but they are well below 11. "

david.smith@sunday-times.co.uk

Well in London, I reckon it is near 10x earnings and no, I don't believe the average London salary is anywhere near 44k.

So ok fine, but what about the growing numbers of people who don't earn 30k a year. This includes many teaches, tradesmen...like myself, bus drivers, nurses, retail workers, office workers, service sector employees....etc etc.

£25k in the midlands is a very good wage, but there's plenty who are paid a lot less than that. So what happens to them....ghettos, slums, poverty etc etc....just whats happening now.

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So ok fine, but what about the growing numbers of people who don't earn 30k a year. This includes many teaches, tradesmen...like myself, bus drivers, nurses, retail workers, office workers, service sector employees....etc etc.

£25k in the midlands is a very good wage, but there's plenty who are paid a lot less than that. So what happens to them....ghettos, slums, poverty etc etc....just whats happening now.

And that is exactly why the bubble will go pop. It is unsustainable, although I must admit it has sustained for many more years than I expected. :unsure::blink:

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And that is exactly why the bubble will go pop. It is unsustainable, although I must admit it has sustained for many more years than I expected. :unsure::blink:

I thought it would crash years ago but now I don't know whether it will. Renting is so insecure these days and the chances of getting into decent council lettings is zero. So the alternative is to buy a house and with there being a shortage people will do anthing just to get on the ladder.

I think despite recent financial turmoil banks will still be offering 5- 6 times salary loans and this with further fuel house price inflation.

What makes me angry is that we're being turned into slaves, slaves to the cost of living. Many Families who work in the service sector are not taking holidays, they have no savings and would last no more than 4 weeks with no income. We're going backwards in the UK, we're creating a nation of poverty and dependence.

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He's trying to justify 7.1x as quite acceptable.

But I do agree with his figures on a UK wide median basis.

But we have to get back to 3.5x which means a 50% drop. Yet again, that 50% drop. Every graph and statistic gives us the 50% drop!

And what do they say about statistics?????

Statistics can say ANYTHING!

Lok out your window at Real Life! It's somewhat different!

50% drop - no chance!

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And what do they say about statistics?????

Statistics can say ANYTHING!

Lok out your window at Real Life! It's somewhat different!

50% drop - no chance!

I wouldn't bet on it. I can see real falls of 50%+ :o

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I thought it would crash years ago but now I don't know whether it will. Renting is so insecure these days and the chances of getting into decent council lettings is zero. So the alternative is to buy a house and with there being a shortage people will do anthing just to get on the ladder.

I think despite recent financial turmoil banks will still be offering 5- 6 times salary loans and this with further fuel house price inflation.

What makes me angry is that we're being turned into slaves, slaves to the cost of living. Many Families who work in the service sector are not taking holidays, they have no savings and would last no more than 4 weeks with no income. We're going backwards in the UK, we're creating a nation of poverty and dependence.

5-6 times doesn't work, by any definition it's sub prime and that is dead. Lenders have not really ever offered 6 times 100%+ mortgages. Six times have generally been based on self cert or large deposits. The market has been sustained by reckless lending, but that has now come to an end. As for renting we've done this argument so many times - can't afford 600 quid mortgage why can you afford 600 quid rent to pay the landlord's mortgage? Can't get a mortgage due to stricter criteria so therefore you rent? Nope just doesn't wash IMHO.

Edited by Converted Lurker

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So ok fine, but what about the growing numbers of people who don't earn 30k a year. This includes many teaches, tradesmen...like myself, bus drivers, nurses, retail workers, office workers, service sector employees....etc etc.

£25k in the midlands is a very good wage, but there's plenty who are paid a lot less than that. So what happens to them....ghettos, slums, poverty etc etc....just whats happening now.

Unfortunately, and I am very sad to hear this, but I think you are right. I know people in the SE working in retail,manufacturing and administration who are earning less than 20K who will never be able to afford their own property under current market conditions.

The current government has forced anyone under the age of 30 who is not a professional into the private rental market for the long term which seems unfair imo.

Unfortunately there is little alternative in terms of political parties which may explain why the people of Barking are no longer ashamed to turn to a well known far right party. When these previously sidelined right wing parties are the only credible alternative then one can only see problems ahead if there is not a realignment soon.

These issues were discussed by Mark Steyne in the Daily Telegraph a few years ago and now it looks as though he has been proven correct. The general population are seeking out alternatives to the big 3 who have lost touch with the rational man especially on the issue of house prices for the younger generation.

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''As things stand,I can think of as many reasons not to cut rates at the moment as to cut them''

Off the house price/earnings theme of this thread,but I have to say the guy has moderated his opinion lately(as shown by the quote from the start of the article).I always used to think he was fair and Liam Halligan (the lunatic VI at the Telegraph)certainly puts Smith in more favourable light.

Edited by crashmonitor

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I still dont get the fixation on an arbitary 3.5 times ratio. What will actually matter is how much people have available to spend. If the cost of living is otherwise lower than in previous generations then the multiple should logically increase. Generally, thanks to technology, many things we take for granted are actually much cheaper.

Competition, efficient markets, cheap foreign imports have all brought costs down. We all do things daily that people in similar social classes would only have dreamt of 30 years ago. Im not "rich" but even I was able to enjoy a £10 bottle of Tesco Champagne (well rated actually) - imagine my coal mining grandfather drinking champagne lol. From heating to meat to entertainment to simply affording to spend time not working - better off.

But even if you disagree with that, we can look at other thought experiments. If everyone in the UK (as some want us to believe) is paying off a car loan, a sofa loan, a plasma TV loan, a luxury cruise loan, etc. Then surely even 3.5 times is still too high? How can you repay any kind of mortgage it all your money goes straight out.

If you can understand that then you must accept the opposite is true - if you have none of these things, you can afford much more. You really really can. I know this because I do!

Edited by Orbital

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I still dont get the fixation on an arbitary 3.5 times ratio. What will actually matter is how much people have available to spend. Id the cost of living is otherwise lower than in previous generations then the multiple should logically increase. Generally, thanks to technology, many things we take for granted are actually much cheaper.

Competition, efficient markets, cheap foreign imports have all brought costs down. We all do things daily that people in similar social classes would only have dreamt of 30 years ago. Im not "rich" but even I was able to enjoy a £10 bottle of Tesco Champagne (well rated actually) - imagine my coal mining grandfather drinking champagne lol. From heating to meat to entertainment to simply affording to spend time not working.

But even if you disagree with that, we can look at other thought experiments. If everyone in the UK (as some want us to believe) is paying off a car loan, a sofa loan, a plasma TV loan, a luxury cruise loan, etc. Then surely even 3.5 times is still too high? How can you repay any kind of mortgage it all your money goes straight out.

If you can understand that then you must accept the opposite is true - if you have none of these things, you can afford much more. You really really can. I know this because I do!

I agree with some of your points,I do think spending is discressionary and you can stretch your property budget if necessary.I think there are more alternatives for everything you buy nowadays like a multi -tier of food pricing down to no frills that never existed in the past and some of the luxury goods like wine and champagne have been falling in price.The cost of living is cheaper comparitively to what it used to be with the one exception housing, which blows all the advantage away unless you bought cheap.

Edited by crashmonitor

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I agree with some of your points,I do think spending is discressionary and you can stretch your property budget if necessary.I think there are more alternatives for everything you buy nowadays like a multi -tier of food pricing down to no frills that never existed in the past and some of the luxury goods like wine and champagne have been falling in price.The cost of living is cheaper comparitively to what it used to be with the one exception housing, which blows all the advantage away unless you bought cheap.

Exactly what I've been thinking for years. What's the point of a whole lot of goods getting cheaper if every penny of what you save just goes down the house price sink? Why not keep both sets of prices stable? (Answer: of course, because NL wants to spin a CPI that includes only the first group of goods.)

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Guest Popalot

As I wearily approached the Business section of the Sunday Times ystdy I knew that Smith would be somehow trying to debunk everything that has happened in the last few weeks. Little did I expect such blatant and incautious propaganda.

This was his worse column ever. We should keep it on file for the crash. He really does need to lose his job over the position he is taking. He is undoubtedly a BTL landlord, and also in the position of a longtime greedy OO who has MEWd for his wife. Add to that the Murdoch "keep my children's investments safe" mandate and we have an appalling case of biased and irresponsible journalism in Smith.

The redeeming thing about it was that I could sense blind panic and fear in his writing this time........the fool. :rolleyes:

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He is undoubtedly a BTL landlord, and also in the position of a longtime greedy OO who has MEWd for his wife. Add to that the Murdoch "keep my children's investments safe" mandate and we have an appalling case of biased and irresponsible journalism in Smith.

The redeeming thing about it was that I could sense blind panic and fear in his writing this time........the fool. :rolleyes:

I think ALL journalists should have their "interests" declared for all to see, just like the MPs.

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