Sunday, Oct 04, 2009

Housing market is currently in something of a sweet spot

Telegraph: You can't trumpet a housing market revival on a low number of sales

"...house prices to average earnings (the HPE ratio), which has long been my favourite indicator of value...has fallen from a peak of 6.2 to 5.0, but this is around 35pc above its long-run average of 3.7. Indeed, the HPE ratio is only now just about back to where it stood at the previous peak of the housing market in 1989/1990. That hardly inspires confidence. .....
Interestingly, the US HPE ratio now stands about 15pc below its long-run average. In other words, by historical standards, houses there are now cheap. That is a far cry from the situation here. So, despite the recent recovery, I still think that house prices here are heading for a fall."

Posted by sybil13 @ 06:54 PM (1858 views)
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13 Comments

1. mander said...

Previous crush houses prices kept going up for a few months but then foreign investors helped prop it up. Same has been tried this time around by keeping the pound to extreme low levels but it looks like the rest of the world is no longer interested in property speculation. Why do we have to be unique by having houses overvalued with 60% when in the rest of the world houses are overvalued by 20% only?

Sunday, October 4, 2009 07:26PM Report Comment
 

2. gone-to-colombia said...

A very good analysis of the present situation.
This all has to change after the election, I expect some very hard decisions will be made then. We are living in the last days of the age of credit.

Sunday, October 4, 2009 07:32PM Report Comment
 

3. chrisa said...

3. sneaker said...
The Telegraph remains the only paper talking sense on economics.

Sunday, October 4, 2009 08:16PM


Errrrrrrrr....... this is the paper that ran articles virtually every other day last Autumn about the danger of deflation and how we must print lots of fresh money to combat it. I refer of course to Edmund Conway and Ambrose Pritchard Evans at the DT. If these two weren't acting as a pair of deflation propagandists for the banking elite softening up people to accept QE then I'd be very much surprised.

Sunday, October 4, 2009 08:16PM Report Comment
 

4. sneaker said...

The Telegraph remains the only paper talking sense on economics.

Sunday, October 4, 2009 08:16PM Report Comment
 

5. alan said...

I don't think house prices will wait any longer...I'm thinking they will be down on September values when Nationwide announce results in Early Jan.

Unemployment.
Interest rates.
New sellers.
Seasonal lack of interest after the "bounce".
High deposits needed.
Steady flow of repos onto the market.

Sunday, October 4, 2009 09:21PM Report Comment
 

6. fallingbuzzard said...

Average earnings is not relevant. In the 70s, 80s and early 90s when you said that average earnings were say £6k or £15k the average person was earning around that level. Its now not the case because there are a far higher proportion of high earners with very high salaries, much more than in the 70s and early 90s. Nowadays average people earn less than average earnings and the majority of people earn less than average. What is important is median and modal earnings.

Sunday, October 4, 2009 09:39PM Report Comment
 

7. Newprofessor said...

fallingbuzzard : I enjoyed your comments about the importance of using the median rather than the mean when regarding skewed distributions. You make a very apposite point ! Average income can hide the 'thieves' when reporting gained wealth in a defined set, eg company, community or even country. By the way fallingbuzzard, you will be glad to know that your namesake cousins, the red kites, are soaring rather than falling as I saw them driving back this afternoon from Oxford to London on the M40.

Monday, October 5, 2009 01:22AM Report Comment
 

8. uncle tom said...

Bootle spoils an otherwise good piece by repeating the myth about a lack of property for sale...

It's worth noting that any computation of long term HPE ratios will be heavily influenced by the speculative impetus that has driven the market over the last half century. As we move into a post-speculative era, the expected HPE should be significantly below the long term average - as is now being seen in the USA.

An HPE of 3.0 - 3.5 is therefore to be expected, against average earnings that are likely to be somewhat lower (in real terms) than they are today - once the government's borrowing express (now approaching £8k per household, per annum..) - hits the buffers.

Monday, October 5, 2009 09:24AM Report Comment
 

9. japanese uncle said...

Whatever mistake the Telegraph made in the past, this newspaper is now virtually the only source of economic information and opnion which reasonable readers can rely on.

Incidentally ,Japan Real Estate Institute published recently Housing Market Index for the 1st half of 2009, which indicates prices of the condominiums in the five central wards of Tokyo dropped by 30% YOY. In just ONE YEAR!!

Things could be as bad as, if not worse, in London.

Monday, October 5, 2009 10:31AM Report Comment
 

10. japanese uncle said...

Reasons for the above are;

-Excess dependence on the financial services.
-Worse (than Japan) job market prospect
-Far bigger personal debt
-Far less personal savings

Monday, October 5, 2009 10:34AM Report Comment
 

11. uncle tom said...

JU,

I'm no expert on Japan - how do the construction vs demolition and supply/demand numbers stack there?

I know the country is very short of suitable land for development, but the population appears to be contracting slightly..

Monday, October 5, 2009 10:47AM Report Comment
 

12. japanese uncle said...

UT

Now the average flat price in Tokyo is roughly 30 million yen ie GBP 200K which is 7 times the avergae income which is yet further shrinking. There is little prospect for the prices to recover in the foreseeable decades to come. Prices will be halved in a few years time, both in Japan and UK. Be in no doubt.

Current 'surge' in UK is sumply thanks to the mad doctors pumping blood in the corpse.

Monday, October 5, 2009 11:03AM Report Comment
 

13. This comment has been removed as it was found to be in breach of our Blog Policies.

 

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