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Hang On - Do The Numbers Add Up?


ezekiel
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It's not x3.5 joint. Either x2.5 joint or x3.5 highest plus x1 other.

Anyway, this assumes every buyer is a working couple. I expect the % that are is less than half, if not a third.

You have all the couples with one partner not working to look after children, plus the huge amount of single people, greater than there has ever been.

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The mean is not based upon a theory of mortgage policy. It's a historical fact.

Extra Dry Martini recently posted a nice chart of the ratio between average single salaries and average house prices going back to 1945.

Regardless of the mortgage policy, the mean ratio of average wages to average house prices is about 4.1x.

At the peak in 2007, the ratio was 8x.

Undershoot on the correction will bring it below 3x.

Like we said, all those months ago, soon, the only things worth selling will be tickets for the show.

Hate being right.

don't really. ;)

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Hi

I was checking the numbers this morning (after talking to a colleague last night) and suddenly I'm not so sure of such a big drop in prices. I was working on prices dropping to 2004 levels at least but now I'm wondering if I've not missed anything.

So, please check my working:

Average salary (according to National Statistics) - £24k apx

Three and a half times joint average incomes should be £168k

Assuming a 10% deposit then an average house for an average couple should cost £168*10/9 = £186k.

According to land registry the average house is £183k or something in that area. So that means house prices are just about right now. So that's can't be right.

So starting again:

3 times joint = £144k

+10% deposit = £160k

So house prices need to drop by 12.5% to get to what Mr & Mrs Average can afford.

I've assumed a classic conservative model here (three and a half times joint with a 10% deposit) as being the mean that we'll return to (sure there will be some overshoot but its roughly the long term average isn't it?).

But.......

I think houses have much further to go than this. So what have I missed?

I realise you could use the median salary (which I think is about £18k), this gets you to a much larger margin (34% drop - now that's more like what I think will happen). Can anyone who really understand statistics comment on whether the median is the more valid number to use? Or shed any light on this way of looking at the numbers? I mean, we know that the lenders have been providing silly mortgage income multiples, but someone needing 6x income would need to be on the minimum wage and looking to buy a mansion wouldn't they (OK - I exaggerate a little)?

Or maybe the Land Registry average price is not accurate - anyone know a reason why?

Any nutters fellow posters who want to talk about govt. manipulation of statistics or other conspiracy theories then please don't, I've had a long day and would like to be able to repeat reasonable arguments to sensible people.

Ta

3.5 x joint??

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I know many of you won't like this, but I think loans and mortgages should only be given to those who...

1. have been in the same employment beyond the probationary period (usually 6 months or a year)

2. can provide payslips which are directly verifiable by computer or phone call as genuine and not lasered

3. have passed a home economics test at an adult education centre run properly not by tutors who give you the answers on a nod and wink, that proves people have a full grasp of outgoings/income, APRs, compound interest, inflation rates, costs of property maintenance, utilities and other expenses

4. provide copies of all issued credit cards' statements going back 2 years proving a steady or decreasing balance rather than one that is increasing in debt (decreasing by minimum 5% per month, not 5p)

A bit nanny state-ish I hear you cry. Yes it is, but better that than out on the street repo'ed, or debts and bubbles, and ultimately you and me the taxpayers paying for this circus.

How about them actually saving for a deposit too of say 10% of the value of the property?

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This does raise a good few points though.

What hasn't changed?

- People will still (wrongly) judge affordability by the size of their first monthly payment. "Can I afford #1000 a month". They will not realise that in a low inflation world the "stressed period", when payments are high relative to salary is much longer than in an inflationary (wage inflation) world. This limits the downside if, and it's a big if, the broader economy isn't in a major recession (jobs lost etc).

- People also still see housing as a cash machine rather than shelter. We need to change this entire mindset.

- What will banks lend on in future. If they are bailed out are we back to crazy mortgages to the dog and his wife? Or will they actually go old-skool and say 3.5 main + secondary (so people can actually afford kids), or 2.5 joint? Hard to see which way this will blow yet.

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There has been such huge demographic change in the last 15 years that certain historical rules of thumb (salary multiples to average market property prices etc..) are probably rather rendundant in terms of forming the basis for predicting any future property market position.

Increasing longevity and immigration have both contributed to a quite significant change in movement to the UK poulation total. From a period when total population was static and even predicted to fall slightly the situation has very rapidly reversed. With a desparate shortage of affordable/social housing already it is (sadly) unlikely that any state efforts to address this situation will in the medium term actually be great enough to offset the ongoing additional strain posed by a swelling population.

Of equal if not greater significance than a modest growth in population changes in social demographic have also generated massive additional demand on existing housing stocks. i.e. disintegration of family unit, more people choosing to remain single etc ... Current social patterns are likely to remain.

There WILL be a housing shortage and affordability will continue to be an issue for a significant section of society (even after any current market correction) until more housing is built. This is a long time away.

18 months ago I felt that a 20/25% correction was inevitable. I think current monthly falls are likely to continue for at least the next six months. Sentiment may drive the market down to say 35% below peak 2007 levels by the end of 2009 but I would expect some subsequent short-term rally back to late 2003 / mid 2004 levels. The generation of new housing stock (if it happens) will promote some moderation of house prices in real terms in the medium to longer term.

In about 10 years time things will get very interesting as the nation awakes to the fact that huge numbers of people will shortly be approaching retirement age, be expecting to live for another 25 years and have little or no funds to provide for them. On a national level then the looming pensions crisis has the potential to make current economic "difficulties" look rather trivial!

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Of equal if not greater significance than a modest growth in population changes in social demographic have also generated massive additional demand on existing housing stocks. i.e. disintegration of family unit, more people choosing to remain single etc ... Current social patterns are likely to remain.

And if 'more people are choosing to remain single', then that means prices will have to drop to 3.5x a single person's income. This argument is just as silly as it's always been... people simultaneously claim that prices are high because couples have two incomes and that prices are high because people are living alone; it's absurd.

There WILL be a housing shortage and affordability will continue to be an issue for a significant section of society (even after any current market correction) until more housing is built. This is a long time away.

Where in the UK is this mythical shortage of housing? Everywhere I lived in the last few years had a glut of unsold new build flats and houses at hugely inflated prices.

In about 10 years time things will get very interesting as the nation awakes to the fact that huge numbers of people will shortly be approaching retirement age, be expecting to live for another 25 years and have little or no funds to provide for them. On a national level then the looming pensions crisis has the potential to make current economic "difficulties" look rather trivial!

Which is another good reason why no-one should be paying 6x their income for a crappy house.

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snip

- What will banks lend on in future. If they are bailed out are we back to crazy mortgages to the dog and his wife? Or will they actually go old-skool and say 3.5 main + secondary (so people can actually afford kids), or 2.5 joint? Hard to see which way this will blow yet.

whats hard.? SIVS no longer trade and are being basled out of existence

Fannie and Freddie are to contract 10% per year from Next year.

banks, evne if they replace some of their devalued capital with cash, will still have mortgages on their books when they are sold.

the MBS is dead.

so a top exec in a bank is going to say to the troops... Market share marketet share we get bailed..... knowing that even though he may have been bailed before, there is no money NOW to bail them again.

And how many people are going to buy in against sentiment? how many are going to have the deposits? How many will have a savings track record with their bank, no MEW and little debt to afford 6 times salary?

People disbeleived the mechansim of debt creation. It worries me that even BUSH has told the American people the mechanism used has broke, has been debauched by greed, and that it is broke. It is a National Emergency he says.

No, stupid lending, its not going to happen. Unfortunate lending, yes, but that always happens.

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By the way -- "Average" salaries may be c "£24k" -- but MEDIAN salaries are nearer - what - £15-18k? ............. The "average" is TOTALLY skewed by Liar Loan Salesmen's "salaries" -- [legalized daylight robbery

The ONS median salary is (or was) around £24k.

However when you check the cml stats the median FTB salary was well over £34K. Not telling us anything we didn't know - just that only people with more money can buy overpriced starter houses.

I tired to explain it earlier in the year: http://www.housepricecrash.co.uk/forum/ind...ost&id=8387

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for 0.02p worth

I live in the brighton area and the 1 bed flat i used to live in was £170k and of the ordinary people i know £35k a year is high and most would earn £20-25k lots with degrees earn £15k.

Rather anecdotal but my point being as somebody pointed out the other day, is that there are bigger booms in different areas.

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The ONS median salary is (or was) around £24k.

However when you check the cml stats the median FTB salary was well over £34K. Not telling us anything we didn't know - just that only people with more money can buy overpriced starter houses.

I tired to explain it earlier in the year: http://www.housepricecrash.co.uk/forum/ind...ost&id=8387

There are huge regional variations though for both (don't think the CML publish regional salary data but the ONS do) , with London obviously much higher (my recollection was £34k) and most of the North at the £18k - £20k level - which I think means that £225k 2 bed flats in the north of england will fall even further than the 50% we are seeing in auctions now.

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I know many of you won't like this, but I think loans and mortgages should only be given to those who...

1. have been in the same employment beyond the probationary period (usually 6 months or a year)

2. can provide payslips which are directly verifiable by computer or phone call as genuine and not lasered

3. have passed a home economics test at an adult education centre run properly not by tutors who give you the answers on a nod and wink, that proves people have a full grasp of outgoings/income, APRs, compound interest, inflation rates, costs of property maintenance, utilities and other expenses

4. provide copies of all issued credit cards' statements going back 2 years proving a steady or decreasing balance rather than one that is increasing in debt (decreasing by minimum 5% per month, not 5p)

A bit nanny state-ish I hear you cry. Yes it is, but better that than out on the street repo'ed, or debts and bubbles, and ultimately you and me the taxpayers paying for this circus.

Yet most of this required if you want to RENT a property!

Come to think of it, it has been easier to get a mortgage than rent for a long time. :angry:

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well ... how do you get 18k?

Wage distribution is not a normal bell curve, most of the distribution is over in the first quartile.

I think I'm actually in the top 10% of earners in this country using the proper wage distribution charts, but I still can't afford an average house on 3x salary.

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I think if you were to apply the 3.5 multiple, it would be better to use the average male salary. Bit old fashioned but I reckon it's fairly safe to say that the man is the prime earner in most households, and the one whose salary the mortgage affordability would be based on.

Anyone know the average male salary?

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I think if you were to apply the 3.5 multiple, it would be better to use the average male salary. Bit old fashioned but I reckon it's fairly safe to say that the man is the prime earner in most households, and the one whose salary the mortgage affordability would be based on.

Anyone know the average male salary?

bit old fashioned? arent women still having babies? or is male birthing the new mantra?

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