House Price Poll

[andrewducker]

From

You'll note that the ratio is still well above the maximums of the bubbles in the 1970s and the 1990s.

[Poll #1337633]

Comments

[drplokta]

The ratio of house prices to earnings is not a good measure of affordability. In the early 90s, with mortgage interest rates around 12%, mortgage payments on a 25 year repayment mortgage for 4 x salary would use up 51% of your gross income. With interest rates around 4%, that drops to 26%. Do a chart of the ratio of mortgage payments to earnings, not house prices to earnings.

[bracknellexile.livejournal.com]

In terms of making the house market viable again though, the ratio of salary to house price is a reasonable value if (and who knows what they're really thinking at the mo) the banks have it in their heads that they won't lend at more than 3.5x or 4x a salary to avoid bad debts.

And if banks won't lend to risky customers, no matter what the interest rate, then the ratio will have to drop for houses to become affordable.

[drplokta]

Actually, the banks lending at 3.5x to 4x salary indicates that they are taking lower interest rates into account. Back in the late 80s, when I bought my first house, it was 2.5x to 3x.

The main problem at present is that you need a deposit of 20% or 25% to get a decent mortgage.

[the-magician.livejournal.com]

The deposit is indeed my worry at the moment, because even if I can rent my house in London out for a sum that will cover the mortgage, I don't have a lump sum deposit to put down on a place here in Cambridge.

And it will probably take me more than six months for the difference between what I paid in London and what I'm paying in rent to generate enough money to pay for the house repairs in London ... so I can't start saving for a deposit until the second half of this year ... but if I sell off a lot of stuff (I don't need it!) and cut back on expenses (like conventions!), maybe I'll be able to look at buying something in second half 2010. Or a lottery win would be nice!

[the-locster.livejournal.com]

Yeh I guess it would be worth a look. I actually started out looking at property price and interest rate correlations back in 2001ish. Off the top of my head I'd say my main gripe with such a metric is that interest rates do tend to change very abruptly, so that what is affordable today might not be tomorrow due to government and central bank rate setting; which in turn is an artificial manipulation of markets. In fact in the global sense it is possible to define a 'true' interest rate, albeit one that we can't ever know for sure, but then again we don't know what the official rate will be for sure tomorrow and thus effectively today. Yes you can take out a fixed rate loan, but that just hits the bank or yourself when the rate changes, thus if everyone took out such loans then the rate becomes unsustainable either for the banks or the debtors - the *true* rate always wins in the global(mathematically speaking) case, as we are witnessing right now.

The crux of my argument is that official rates are not indicative of the *global* or *true* rate, which, getting back to basics, is the rate at which capital is able to produce new capital and goods(+money supply rate). As such you might take the view that the official rate is effectively a random variable that at best only loosely correlates with the true rate.

Another way of looking at it is as short term chaotic fluctuations in official interest rates versus what is clearly a slower cyclical dynamic observable in the graph. That is, the main characteristics of the slow dynamic are perhaps largely independent of the short term dynamics of interest rates by way of a multitude of feedback mechanisms that we barely understand + the reactionary dynamics of politicians that are entirely predictable in these situations.