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.

[drplokta]

Also, the house price data set used in the graph is clearly either the Halifax or Nationwide one, as it's showing prices peaking under £200,000, which is wrong. First, Halifax and Nationwide track the price of a "typical house", and their figure is more like a median than a mean, so you shouldn't compare the data against mean earnings. Second, they adjust out improvements in the housing stock, so they assume that the housing stock does not change in composition or quality over time. Go and get some decent figures for the actual mean house price from the DCLG, or the Land Registry if you can dig deeper than their new index (which uses a geometric mean rather than arithmetic).

[lebeautemps.livejournal.com]

I'm not thick, but could you explain what a "Multiplier" is on this graph?

[drplokta]

Here's another graph from the Nationwide (so it's still using their slightly duff house price series), showing initial mortgage repayments as a percentage of gross income (the red dotted line). It shows a much less extreme peak, much smaller than the one in the late 80s.