Thursday, November 6, 2008

You can tell that the MPC are going to make a decision …

October House Price Index

... 'cos the Halifax have just released their figures for the previous month.

Posted by mark wadsworth @ 10:23 AM (778 views)
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12 thoughts on “You can tell that the MPC are going to make a decision …

  • Unfortunately, through overuse (abuse?) of the “LOWER RATES” lever, the stick has become worn and no longer works.

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  • “We expect a further improvement in the ratio as prices continue to soften. The long-term average is 4.0.”

    In other words, we expect prices to continue crashing. And if the ratio now is 4.92 and they are implying it will return to the long-term average of 4.0, that means another 20% real-terms drop in prices.

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  • From this report :
    3. PRICE/EARNINGS RATIO
    Ratio of the Halifax standardised average price to national average earnings for full-time male employees. Price Earnings ratios revised to reflect new data in the Annual Survey of Hours and Earnings (ASHE)

    So according to this report the avarage house price is £168,176 and this is 4.92 times the avarage wage. So the avarage wage should be £34,182 (£168,176 / 4.92)

    But the ASHE report on the national statistics web site says (in April 2007) the avarage weekly wage for males was £498 = £25,896 per year. See this link http://www.statistics.gov.uk/pdfdir/ashe1107.pdf

    So shouldn’t the price / earnings ratio be 6.49 (£168,176 / £25,896) ?

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  • the way things are going, low car sales, poor high st sales, layoffs, etc i would expect to see average house price to go to less than 100k

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  • And on another point, why are they basing it on the average male wage? We’re not living in the 1950’s are we?

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  • I agree, I have always queried this exact statistic. It never adds up.

    Anyway at the best of times it is a useless statistic, because of the North South divide, this may be the London average salary (still doubt it) and the average house price on the outstkirts of Liverpool.

    They should do a like for like comparison in all areas or boroughs then do an average of the average, if they want a total average.

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  • little professor says:

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  • mark wadsworth says:

    @ wage slave

    using this link to ASHE http://www.statistics.gov.uk/downloads/theme_labour/ASHE_2007/tab1_1a.xls

    there’s a separate tab showing mean full time male wage £606.10 per week (= £31,517 p.a., add on 4% for wage inflation = £32,777, still somewhat shy of the required £34,182!!), the median is indeed £498, but you’d expect the median to be lower than the mean.

    To be fair, you have to compare average (i.e. mean) house price with average (i.e. mean) wage. Comparing the median with median is also fair. Either way, it’s the consistency that matters. I have seen other surveys saying average house price is 9 times earnings, for example, but that series said that ratio was 5 back in the mid-1990s.

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  • “The UK average house price is 22% higher than five years ago”.

    That’s ok – 20% is the least I’d want off the asking price anyway!

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  • Martin Ellis, the chief weaselwordsmith. Note that prices are not crashing: affordability is increasing. The market is “challenging”, not dreadful.

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  • @mark wadsworth, wage slave: The figure that HBOS use is the mean *annual* salary for male full-time employees, in table 1.7. Well, they say they do: at £33,736, even that doesn’t quite add up. I think they’re averaging a few months’ average house price to get their affordability measure. That suppressed the figure a bit while the market was rising, but now means it’s slower to drop.

    Their insistence of a long-term price/earnings of 4.0 is nonsense, though. I’d like to see that figure if you *exclude* the latest bubble, I think it would be substantially lower. To put it in perspective, the average borrower would have to have a year’s gross salary saved in order to borrow at 3x salary to buy the average house – the top end of what banks would traditionally lend.

    If, however, we’re serious about offering home ownership to the masses, yes, average prices have to be affordable for more than the top 25-30% of male full-time earners (look at the percentiles to see where the mean lies) and the top 10% of all earners (that male average gross salary is a weekly income of £648.77, which is greater than the weekly earnings of the 80th percentile of all earners). On the basis of median weekly earnings (£347.90 annualized to £19.5k) the multiple is now 8.62.

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  • Copied from the earlier BBC post: The unadjusted falls using monthly figures are -14.63% on last October and -15.74% from the peak last August. And as the Halifax press release makes clear, house prices versus earnings have another 20% to fall before they even reach the long-term average P/E, with no doubt further overshoot beyond that, as we saw for several years in the mid-1990s.

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