Anyone Got A Pseudo Scientific Method For A Target House Price?

[roblpm]

Sorry to talk about house prices ....................!

1) No-one knows where house prices will bottom out. I suggest most on this forum (including me) called the top far too early and therefore I don't have that much confidence myself in calling the bottom.

2) My wife would like to buy a house!

So what I am trying figure out is this:

Assuming you know what house you want and you know how much money you have or could borrow I think a more sensible way to decide when to buy is when house X costs Y.

So what is Y??

If you choose say 2002 prices should this price then be inflation adjusted forwards to say 2009?? And how much is that? Anyone got a good method of calculatin gforward inflation?

Or should it not be inflation adjusted?

Or should it be generated on the rental yield (though low for family houses in good areas?)

Or should it be calculated on 3.5 times earnings? But thats a bit difficult for a specific house?

Any ideas how I can generate a pseudo scientific methodolgy??

[Wad]

Take the asking price of a house that you saw and liked that was advertised for sale in July 2007 then subtract 40% from that July 2007 asking price and then add back the increase in RPI since that date up until now and it will give you fair value now.

In other words at the peak of the market houses were 40% overvalued in real terms. You need a 40% real drop in prices before buying.

Edited October 9, 2008 by Wad

[roblpm]

You mean RPI from July 2007?? So to say July 2009 would give something like at rpi 4.5%:

So for a 300k house

You get 300 - (300*.4) = 180

Inflation = 180k (1+.045)^2 = 196.56

Anyone else agree??

Near enough 2/3

And you say advertised, shouldnt that be sold price??

[The Knimbies who say No]

Sorry to talk about house prices ....................!

1) No-one knows where house prices will bottom out. I suggest most on this forum (including me) called the top far too early and therefore I don't have that much confidence myself in calling the bottom.

I wouldn't fret about the bottom, it's only the tops that are spikey.

The bottom of the last boom lasted a couple of years, so don't rush in.

Interesting, the month-onmonth figures did turn positive for a month here and there before the bottom, so don't be duped - the next positive m-o-m figure will be jumped on as 'the bottom' etc-probably not likely(may not be far off it by then though, but might as well wring out the last 10%, eh?!)

here's an inflation-adjusted(RPIX) piccie. Still a long way to go yet:

[The Knimbies who say No]

I should also say I'd expect the bottom to be close to the long-term trend of 3* average wages, however, this may be modified a bit in light of interest rates which are far lower than long-term averages.

However, remember, 'the trend is your friend' - If they're still falling, steer clear.

[hairbearbunch]

Earnings. If you can afford it on what you earn it's affordable. That sounds more trite than I mean it to. IF lending is going to resume a more sensible pattern of 20% deposit plus 3.5 - 4 times earnings calculate it from that. IF that is where we end up going during the recovery then large large large large drops are in the offing for certain types of property. Be realistic about what you could afford if the market had remained sensible. Unrelated but fun, there is a nice bit of comparative pricing on page 117 of Fred Harrison's book "Boom Bust"

In 1910 a 5-bedroom house in London's Chelsea was sold by Knight Frank for one thousand pounds. Ninety years later the same house was worth 4.5 million, an increase of 450,000%. In the estate agents survey, luxury goods were shown to average an increase of 8.800%

Just for fun I applied the 8,800% inflation figure to the 1910 house price and according to my arithmetic at that rate it would now be worth 89,000 GBP. A drop of 98%. Heheheheh... It's nice to dream of a sensible world.

Edited October 9, 2008 by hairbearbunch

[Guest An Bearin Bui]

Or should it be generated on the rental yield (though low for family houses in good areas?)

This is the kind of the measure I use for my own rule of thumb. I would aim to only pay a maximum of 15 years of rent for a property, ideally preferring to pay 12 years of rent as that is the historical average that house prices track. Currently house prices are at about 25-30 years of rent which equates quite neatly to a 30-50% overvaluation.

E.g. the place I currently rent sold for £175000 in 2003. It rents for £650 per month. The maximum I would consider paying for it is therefore £117,000 and would prefer to pay about £95k. Conveniently enough if I did buy at that price it would also mean I could rent it out and still comfortably cover the mortgage at about 6% interest.

It makes sense to me anyway!

[roblpm]

Still falling??!!

According to most indexes Edinburgh, where I am, is still going up!!!!!

[The Knimbies who say No]

Still falling??!!

According to most indexes Edinburgh, where I am, is still going up!!!!!

ha. Auld Reekie will have its day too unfortunately. The 'burg is a funny place-totally overvalued. I cant imagine this HBOS/RBS stuff will help matters. sit it out.

[roblpm]

Couldnt agree more, wages are pretty poor compared to london, yet people are paying london type prices.

[Converted Lurker]

rob, you could do worse than show her Spline's excellent graphs at http://www.houseprices.uk.net/ He's done a predictor series, scroll half way down the page.

http://www.houseprices.uk.net/articles/hou...rice_predictor/ Just make sure you're not holding a bacon butty and or cup of tea when you look at it, you'll drop it.

[AteMoose]

its difficult, it all depends on inflation.

If inflation rises and feeds into wages then falls will be less, if we get deflation and fall wages falls will be greater. Globally Inflation/Deflation depends on what you think the pound will do, if the pound falls higher inflation, if the pound rises lower/no inflation.

Do you believe in inflation or deflation?

[needle]

Anyone Got A Pseudo Scientific Method For A Target House Price?

Spline is your man for that.

He's got a whole bag of mind-twisting unfathomable ephemera for you.

But remember, its all scientific!!!

[PotNoodle]

Target Price , TP = K x IR x TRPI/RPI x BS

where K is the number of months to go until the next General Election

IR is interest rates

RPI is the Government calculated Retail Price Index

TRPI is the True RPI (about double the Govt RPI)

BS is the Total number of times GB can say "It's not my fault"

Personally, I reckon a target value should be 3.5 x average earnings.

But it might overshoot to 3 x average earnings

2004 is about the most stable (recent) year to estimate a particular property's

value in relation to the national average value.

[roblpm]

Pot Noodle, excuse my ignorance but could you expand on the theory about 2004 prices??

[Quoth]

Spline is your man for that.

He's got a whole bag of mind-twisting unfathomable ephemera for you.

But remember, its all scientific!!!

If we're talking pseudo-science does it include phrenology? You could try and read the bumps on an estate agent's head to try and guage the price - you could then fudge the result to suit by adding a few more bumps.

Q

Edited October 9, 2008 by Quoth

[Sonic the Hedge Fund]

If inflation rises and feeds into wages then falls will be less, if we get deflation and fall wages falls will be greater. Globally Inflation/Deflation depends on what you think the pound will do, if the pound falls higher inflation, if the pound rises lower/no inflation.

Don't think it's as simple as that, houses are not the same as imports of energy, food and consumer durables.

GBP has held up only due to relatively high IR in the global currency market. Therefore any sustained fall in the pound will cause carry trades to unwind fast, reducing avaibility of UK credit further, thus a fall in the pound may cause house prices to fall further, while consumer prices (imports) continue to rise.

But IMPO consumer prices will no doubt follow the recent dramatic slide in comodities, due to falling global demand, so even a significant fall in the pound will likely be masked by globalised consumer price deflation

Thus IMO it is entirely possible that we may see a fall in the pound, house prices and consumer goods all at the same time