Monday, Oct 02, 2006

House prices still affordable and set to rise!

Telegraph: A new way of viewing house prices

House prices are still affordable and will rise rapidly over the coming year, according to research commissioned by The Daily Telegraph. It reveals that although housing is close to being its most expensive since before the crash in the early 1990s, it is nowhere near the level of unaffordability that would trigger a crash.

This index differs from conventional measures because it takes into account the important change in households in recent years, with a dramatic rise in the number of two-earner households.

It compares the level of interest rates with earnings and house prices, rather than comparing earnings to prices. It points towards strong price growth next year.
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Silly graph here: http://www.telegraph.co.uk/money/graphics/2006/10/02/cnhouse02big.gif




Posted by little professor @ 03:49 PM (455 views)
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31 Comments

1. Sam said...

lol, Sorry, these articles are just making me laugh now.

"....although housing is close to being its most expensive since before the crash in the early 1990s, it is nowhere near the level of unaffordability that would trigger a crash."

It's not the direct affordability of houses which would lead to a crash. stupid, stupid idiot, am sure if you ask him about intrest rates he would suggest having them close to deflation so it would mean that property would even more 'affordable' -- despite screwing teh rest of the economy.

but the graph is nice. good use of colour but could have used gradient shading.

Monday, October 2, 2006 04:48PM Report Comment
 

2. Dontpanic said...

"However, economist Diana Choyleva warns that if, as many expect, the Bank of England cuts rates next year in the wake of a possible US slowdown, this could cause a serious bubble."...Could cause a serious bubble? Is she suggesting that there is not a serious bubble now!

Monday, October 2, 2006 05:04PM Report Comment
 

3. Ticktock said...

Thanks all the same, but I think that I'll stick to the old method of valuations!!

.....we put these numbers into our magic truth telling prediction widget, in which any number higher than 5 predicts an imminant house price boom and got.......(drum roll)............7!!! Which means, according to our experts that house price inflation will accelerate to 1000% per anum, and anyone who calls us a liar is a rotter.

Seasonally adjusted figures, compared on an annual basis, multiplied by our experts secret magic number, and then divided by the number of trees in the average family garden suggest the boom could last more than a decade, making this the best of possible times for dozens of young first time buyers to club together, take on a joint mortgage, and purchase that special ex-council house on that up and coming ex-council estate.

"Theres never been a better time to buy a house" said one expert estate agent, and his views were supported by the claim of an expert banker that "there has never been a better time to take out a mortgage"

Monday, October 2, 2006 05:35PM Report Comment
 

4. sovietuk said...

dubious analysis of the situation, the article is short on actual numbers and doesn't give much in the way of plausible evidence.

Monday, October 2, 2006 06:39PM Report Comment
 

5. Mjs9691 said...

This graph suggests that house prices in 2004 were as "affordable" as in 1995/96. What a load of rot! Just talk to any FTB who bought in 1995 and compare with a FTB who bought 2004; no prizes for guessing which ones will be strapped up repaying (slaving for the banks) for a good decade or two longer.

Monday, October 2, 2006 07:00PM Report Comment
 

6. paul said...

Like the recent revelation regarding the inflation rate, this revelation seems to centre around a previously-undisclosed-factor-that-no-one-realized which completely changes the overall picture of the housing market, which also - by remarkable good fortune and completely coincidentally - supports the opinion that the outlook is much rosier than previously thought.

Yippee!

Monday, October 2, 2006 07:11PM Report Comment
 

7. bidin'matime said...

"The results will surprise many families, who are increasingly struggling to afford mortgage payments."

For which read "I don't believe the results either..."

I tell you, Conway is a bear.

Monday, October 2, 2006 08:18PM Report Comment
 

8. talking rot said...

Oh you bunch of cynics.

Who said that a cynic is some one who merely sees the world as it really is, not how they are told to see it.

Monday, October 2, 2006 10:04PM Report Comment
 

9. devil's advocate said...

Same old posts as usual. Have been reading these for the past couple of years but house prices continue to rise. Will you be patting yourselves on the back if the prices drop by 15% even if they have gone up by double that by the time they slide.

Monday, October 2, 2006 10:48PM Report Comment
 

10. bidin'matime said...

I'm betting on 50%.

Monday, October 2, 2006 10:54PM Report Comment
 

11. Rimmer said...

devil's advocate said.
"Same old posts as usual. Have been reading these for the past couple of years but house prices continue to rise. Will you be patting yourselves on the back if the prices drop by 15% even if they have gone up by double that by the time they slide"

You might be right but at least by your statement you admit it is a up and DOWN market, prices cannot constanly keep rising at 2, 3 or 4 times wage inflation indefinitely something has to give, that something is also in a growth economy, for me either prces will fall or stagnate for many years, it really depends on the global ecomomy.

Tuesday, October 3, 2006 12:58AM Report Comment
 

12. george monsoon said...

Did you know that 89% of statistics are made up on the fly?

Tuesday, October 3, 2006 07:20AM Report Comment
 

13. paul said...

devils advocate,

You appear to think that housing market inflation behaves like an untethered kite rather than an elastic band.

Well, the thing reigning back the housing market, as Fffyyona Eauarlley (as I think she's called) from the Halifax says is affordability. Doesn't really matter which way you cut it to make it look not as high here or there - raw statistics give a much bigger picture. Just on income multiples, the elastic band is becoming more taught and reaching the end of its elastic limit.

15%? That's optimistic. What exactly do you think will make the market bottom out at 15%, when people are still bailing out?

Tuesday, October 3, 2006 09:28AM Report Comment
 

14. Bearsall said...

The point the article makes about affordability is a good one though - where lenders are willing to allow steepling loan-to-income multiples, it's how much it costs to repay the loan which determines whether the borrower can afford to buy the house or not. And that depends on interest rates. Your guess as to where rates will go is as good as mine, but in an economic environment where the government spending tap will be slowly turned off in the next few years and where consumers are all borrowed up to the eyeballs, I would have thought the difficulty for the BoE would be getting the economy to grow rather than keeping it in check. And that means lower rates.

Tuesday, October 3, 2006 09:49AM Report Comment
 

15. Sam said...

Some good points devil's advocate, but I am resigned to believe that a market correction is in order. I really cannot see where there will be the same growth in the next ten years as there has been in the past. Yes I agree the market has shown some resilience to follow what many predicted but with any bubbles (and the current one is the biggest in history for most of the world) there will be a tipping point.

And Im not suggesting that prices will nose dive, they may well level off and wait for wages and everything else to catch up but in real terms that would still be a correction.

Like many on this website, sold my house and currently am confident if it were to go on sale now (18 months later) I would be able to buy it pretty much for the same price.

S.

Tuesday, October 3, 2006 10:05AM Report Comment
 

16. miniftse said...

I think the article does raise a very good point...what happens when someone drops their IR to boost a flagging economy and floods the world with even more cheap money?!

I'm not sure I read their graph the same way they did, looks to me like house prices are close to being dangerously unaffordable? What more is when house price affordability moves into the dangerous zone (middle) it tends to shoot through it pretty damn quuickly to the other side!

Tuesday, October 3, 2006 10:22AM Report Comment
 

17. devil's advocate said...

If interest rate do not rise significantly then the prices will not drop. The government are not going to let rate rise unless they absolutrly have too. As the pound is currently very strong I can't see them rising too much.

The BTL market will also resist selling up, they will have fixed a lot of their debts, this will mean that it will take a good few years before the effects are felt.

I cannot see anything happening for another 3-4 years if it does.

Tuesday, October 3, 2006 11:38AM Report Comment
 

18. devil's advocate said...

If interest rate do not rise significantly then the prices will not drop. The government are not going to let rate rise unless they absolutrly have too. As the pound is currently very strong I can't see them rising too much.

The BTL market will also resist selling up, they will have fixed a lot of their debts, this will mean that it will take a good few years before the effects are felt.

I cannot see anything happening for another 3-4 years if it does.

Tuesday, October 3, 2006 11:38AM Report Comment
 

19. miniftse said...

Devils, I happen to agree, reckon they'll inflate there way out of this one. Clearly loading yourself with the brim to debt and letting inflation take care is the only way forward. It's a crazy world. Almost took the plunge at the weekend and bought a city centre small 2 bed flat for 135k, only 5 times my income! But will rent for close to the 700 a month repayment.

Tuesday, October 3, 2006 12:20PM Report Comment
 

20. sovietuk said...

miniftse, but remember banks don't like inflation it hits them hard and they are powerful. They control the lending and they won't let themselves become unprofitable!

Tuesday, October 3, 2006 12:27PM Report Comment
 

21. george monsoon said...

Devil's advocate, I have to agree, but that does not make me feel any better. I will never be able to buy at this rate. I will teach my children that the best to invest your money is put it in Dept company shares. They can only go UP in value....:O)

Tuesday, October 3, 2006 12:59PM Report Comment
 

22. bidin'matime said...

Oh dear - sounds like some of us are in need of a boost!

Unless they significantly increase the target inflation rate, then even using the distorted CPI, they will be unable to solve the problem with inflation. It will take the best part of 20 years of zero HPI to close the gap at the current rate - not a sustainable proposition - house prices go up or they go down - remove HPI and the BTLs lose interest - having a string of BTLs has become the thing to do - it's only a matter of time before it becomes the thing not to do. Okay, they wont all go out and sell overnight, but - take away the BTL and what do you have? - a lot of unwanted property at the bottom end. Result - prices fall, the rot sets in and down we go.

It's only a matter of time.

Tuesday, October 3, 2006 01:30PM Report Comment
 

23. Holding Out said...

I was recently cycling down a country lane when I encountered a flock of sheep. On sight of me they all began running down the road I sped up and managed to get past a few of them. You would have thought these few would have been relieved to be in the clear but they ran after me trying to rejoin the others. I kept going and passed more of them, still they kept pursuing. Eventually I had passed more sheep than I had in front of me, only then did the sheep behind stop. Those in front suddenly felt the urge to turn and return to the main group. Funny thing herd mentality.

Tuesday, October 3, 2006 01:51PM Report Comment
 

24. Njb1978 said...

I am a first time buyer; I cannot afford a half decent home, one bigger than a shoe box anyway. I have a good job and earn a decent salary and what these people say is utter nonsense. The avg salary is approx 26k, avg house costs !*?*!*?*k, errrrr 5-6 times salary, yes its so affordable, hang on i'll grab a few whilst its so cheap!!

Is it not true that every boom has a crash?!?! so many factors, so many 'experts' quoting figures! rates here, costs there, bills here, percentages there. There is no way I would buy a house now for in a few years time to have a huge amount of negative equity. Im sure that there are hundreds of thousands of people like me over the country to.

Perhaps papers should get a first time buyer to write an article on the affordability of residential property?! using realistic and useful cost models and figures.

Tuesday, October 3, 2006 01:57PM Report Comment
 

25. inbreda said...

Ordinarily a cynic, I must say I am refreshed by the miserable comments above.

Only when the last bear turns bull...

Besides, if having (close to) zero interest rates is the only way to keep the market alive, then inflation would similarly have to be zero. If that is the case, wages cannot go up. So OK - if house prices flatten, wages stay the same, what happens to all those on IO mortgages? Or those that are struggling now - will they just struggle on for the next 25 years? All those BTLs that are subsidising their tenants - will they be happy to make a loss for the next 25 years?

No.

Tuesday, October 3, 2006 02:34PM Report Comment
 

26. devil's advocate said...

I'm sure there is a relevance but i've no idea what your going on about inbreda. Why would zero interest rates be required to keep the market going

Tuesday, October 3, 2006 04:13PM Report Comment
 

27. devil's advocate said...

I'm sure there is a relevance but i've no idea what your going on about inbreda. Why would zero interest rates be required to keep the market going

Tuesday, October 3, 2006 04:13PM Report Comment
 

28. waitingfor hpc said...

i do not follow the argument totally. If rates reduce - and people are already in debt - it will have little effect. If rates go down and house prices rise again - it will help push the whole thing over the edge faster & harder.
I love the way devils advocate says ' the govt will not allow IR's to go up'. WHY? HOW? If it suits the govt they will.. or if they can not stop it they will have to. Does he think that the last govt wanted IR to go up to 15% and a house crash to happen?

Tuesday, October 3, 2006 05:03PM Report Comment
 

29. Devil's Advocate said...

During the last rise I believe we had to raise rates in order to kepp up with the US and maintain the strength of the pound avoiding additional inflation pressure. The pound is currently very strong, The government cannot afford a crash to decimate the growth of UK plc they have to support the market.

Tuesday, October 3, 2006 07:19PM Report Comment
 

30. Rentslave said...

This story and graph seem to based on the increase in multiple person households that has probably occurred because people can no longer afford to buy/rent on their own.

i.e. because house prices are so unaffordable, people club together to make them affordable. Now they're very affordable!

This might be the sloppiest piece of journalism I've ever seen, but then I never read the Telegraph so maybe it's just the usual from them.

Tuesday, October 3, 2006 08:42PM Report Comment
 

31. bidin'matime said...

Inflation is inevitable - they have pumped double digit %age increases in cash (the money supply) into the economy, so it has to come through in higher prices sooner or later. Then see them squirm - they can't sit back and watch the index soar - and even modest rate rises will prove fatal to the property market.

The rate is forecast by some to rise this week too - keep your eyes open on Thursday - both and rates on same day - could be fun.

Tuesday, October 3, 2006 09:01PM Report Comment
 

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