Aha!

[andrewducker]

Thanks to henriksdal and robhu who both pointed me towards the Nationwide's supply of historical data, where their data on Afforability Indices for first-time buyers produces this graph:

It's slightly annoying that they don't tell you what percentage it is - instead it's baselined to a 1985 level. But it still nicely shows the cyclic nature of the UK housing market, and that ridiculously unaffordable prices have happened before (and will almost certainly happen again), but that there'll be bits in-between where housing is reasonably affordable. It pretty much has to be, otherwise people can't actually sell their homes.

Comments

[andrewducker]

House price/earnings can be seen here:

which doesn't take into account that interest rates are 1/2 to 1/3 what they were in the 80s.

[anton-p-nym.livejournal.com]

Yeah, interest rates are better reflected by (average annual mortgage payments) / (average annual earnings). Which is, in truth, the best way to figure out whether on can afford a certain mortgage assuming that you take future increases in rate into account.

-- Steve ran similar numbers to make certain he wasn't spending too much on rent... by most arbitrary formulas he is, but the apartment's still affordable because he doesn't own a car which leads to substantial reduction in his cost of living.

[mair_in_grenderich]

neither of those images are loading for me

[andrewducker]

Working now?

[mair_in_grenderich]

now they are, thankyou!

[andrewducker]

Yay! Thanks!
(I originally made the post private, while I fiddled with it, and that meant that the client uploaded the images as private too.)

[the-locster.livejournal.com]

You may recall these posts from a year ago:

http://the-locster.livejournal.com/46176.html
http://community.livejournal.com/economics/381717.html
http://the-locster.livejournal.com/48238.html

[andrewducker]

The first of those is the most interesting (to me), because it shows that the recent property bubble wasn't caused by the usual cyclic nature of the market, but by the cheap money created to get us out of the DotComBubble bursting.

And they daren't raise the interest rates now - so we're left with much higher housing prices for at least the mid term. But the repayment levels are much the same as they ever were.

[the-locster.livejournal.com]

It does get quite complicated - if the government can't sell bonds(gilts) at the currently low interest rate then they if they still want the money they must increase bond's rate to tempt buyers. Bond rates are what back the interest base rate so interest rates would go up in that scenario.

The alternatives are:
1) Cut public spending dramatically and practically overnight.
2) Fund government with quantitative easing = devalued pound.

Alternative 1 probably means a stable(ish) pound and falling mean income, so property prices fall (less income = less demand).

Alternative 2 causes all kinds of trouble, in the long term it means it's better to own a property rather than cash, but in the short term the /nominal/ prices typically would fall because of the amount of uncertainty in the economy as a whole. Or more generally - prices of things get chaotic so it's best to just spend whatever savings you have to buy stuff you need such as a roof over your head.

[andrewducker]

Well, we're already undergoing quantitative easing...

[the-locster.livejournal.com]

Sure. The big question is whether it continues as a means to fill the public funding gap. The plan was to use 125 billion or so to kick start the economy, but it may prove more difficult to stop than was envisaged.

The stupid question you can't answer

[robhu.livejournal.com]

So ... should we want until the house prices go to something more sensible?

Re: The stupid question you can't answer

[andrewducker]

I reckon 6-9 months more, to be honest. But it's damned hard to tell.

Re: The stupid question you can't answer

[the-locster.livejournal.com]

I think the key point is that if you do buy don't overstretch yourself on the mortgage payments. Don't assume interest rates will stay low; consider if you could afford the payments if they went to something like 8-10% for a few years as they did in the 80's. Many folks fall into the trap of taking out the largest mortgage they can and leave themselves very little wiggle room.

Re: The stupid question you can't answer

[andrewducker]

I have a fixed rate mortgage, which is currently costing more than a variable rate one would. But I'd much rather be secure against interest rate changes...

Re: The stupid question you can't answer

[the-locster.livejournal.com]

Yeh, also I imagine for someone looking for a mortgage now that fixed rate deals are currently either hard to find and/or have quite high rates (to reflect the uncertainty in the economy).