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Can’t wait for the big crash

281 replies

HPcrashingdown · 26/02/2023 17:38

I can’t wait for prices to come back down. It’s absolutely ridiculous how mental prices have gone. I will be just waiting with my hefty deposit ready to buy my forever home. It will be great.

OP posts:
rainingsnoring · 10/03/2023 19:21

You might find this interesting. Some of the charts only extend to 2020:

www.economicshelp.org/blog/5568/housing/uk-house-price-affordability/

Mark19735 · 11/03/2023 10:50

I love statistics and poring over data as much as anyone - but you need an element of scepticism and to critically analyse the data to understand what it is saying.

A house price to earnings ratio seems like a simple enough indicator. But there are other societal factors that explain the upward trend, and thus reduce the validity of the 'this proves the market is broken' conclusion.

For instance - is the earnings figure based on that year's income from paid work for a single worker, or an estimated figure based on future combined household income from both paid work and other sources? Mortgage approvals are based on the latter ...
The long term labour market trends have seen household incomes evolve from being mainly from a single breadwinner > main breadwinner plus partner earning some pin money > two main earners
Then, the pattern of long-term earnings over a career needs to be considered. A 16 year old school leaver getting a trade and having a job for life, but where 'life' meant medically incapacitated by 55, is not the norm any more. Professional workers can get significant premiums for their skills early in their careers and remain in very well paid work for much, much longer - easily 50 yrs or longer for safe, sedentary, indoor work.
Then there is the pressure from alternative spending categories. Since the 70s, our membership of the EEC meant that the costs of many commodities reduced in price year on year. Travel, Food, Energy, Consumer goods - all have become much cheaper as earnings have risen. This left people with a lot of spare money available to bid up house prices and 'win' the battle for the dream home. It is the recent unwinding of these cumulative benefits and the pressure from rising food, energy and travel costs that makes housing seem unaffordable today. But that's not a problem of the housing market. (It is a problem for the housing market, for sure - but that's a different topic).
Finally - general inflation was low for the last fifteen years, but it was much higher for much more of the period shown in those charts. Whilst displaying data as "real house prices" seems to address this, the base year that is chosen makes a huge difference. The gradient of the line changes markedly depending on whether you pick a period of low inflation followed by high inflation, than if you pick a period of high inflation followed by low inflation, as the base year.

It's really not as simple as pointing to a chart and saying "see!". Many people have bought houses in each of the past decades and overwhelmingly most will do just fine. In each of those decades some people didn't buy houses, and they are furious because that decision has made them poorer. Whilst I sympathise, I don't conclude that a fair solution is for everyone to be made poorer just so that those people feel better. And for new to the market potential FTBs? Who knows what challenges life will throw at them during their lifetimes, their careers, and the periods of their mortgages. Ten years from now, we might think that half a million for a house is an absolute bargain. Nobody can tell. But if they are enterprising, ambitious and hard-working - they'll be fine.

Mark19735 · 11/03/2023 10:51

Not sure what caused the strikethrough there ... although it is actually in quite an apt place ... just weird that I didn't intentionally do that, that's all!

Twiglets1 · 11/03/2023 11:04

Mark19735 · 11/03/2023 10:50

I love statistics and poring over data as much as anyone - but you need an element of scepticism and to critically analyse the data to understand what it is saying.

A house price to earnings ratio seems like a simple enough indicator. But there are other societal factors that explain the upward trend, and thus reduce the validity of the 'this proves the market is broken' conclusion.

For instance - is the earnings figure based on that year's income from paid work for a single worker, or an estimated figure based on future combined household income from both paid work and other sources? Mortgage approvals are based on the latter ...
The long term labour market trends have seen household incomes evolve from being mainly from a single breadwinner > main breadwinner plus partner earning some pin money > two main earners
Then, the pattern of long-term earnings over a career needs to be considered. A 16 year old school leaver getting a trade and having a job for life, but where 'life' meant medically incapacitated by 55, is not the norm any more. Professional workers can get significant premiums for their skills early in their careers and remain in very well paid work for much, much longer - easily 50 yrs or longer for safe, sedentary, indoor work.
Then there is the pressure from alternative spending categories. Since the 70s, our membership of the EEC meant that the costs of many commodities reduced in price year on year. Travel, Food, Energy, Consumer goods - all have become much cheaper as earnings have risen. This left people with a lot of spare money available to bid up house prices and 'win' the battle for the dream home. It is the recent unwinding of these cumulative benefits and the pressure from rising food, energy and travel costs that makes housing seem unaffordable today. But that's not a problem of the housing market. (It is a problem for the housing market, for sure - but that's a different topic).
Finally - general inflation was low for the last fifteen years, but it was much higher for much more of the period shown in those charts. Whilst displaying data as "real house prices" seems to address this, the base year that is chosen makes a huge difference. The gradient of the line changes markedly depending on whether you pick a period of low inflation followed by high inflation, than if you pick a period of high inflation followed by low inflation, as the base year.

It's really not as simple as pointing to a chart and saying "see!". Many people have bought houses in each of the past decades and overwhelmingly most will do just fine. In each of those decades some people didn't buy houses, and they are furious because that decision has made them poorer. Whilst I sympathise, I don't conclude that a fair solution is for everyone to be made poorer just so that those people feel better. And for new to the market potential FTBs? Who knows what challenges life will throw at them during their lifetimes, their careers, and the periods of their mortgages. Ten years from now, we might think that half a million for a house is an absolute bargain. Nobody can tell. But if they are enterprising, ambitious and hard-working - they'll be fine.

I already think half a million for a house would be an absolute bargain - in London. Would struggle to get a 2 bed flat for that in most areas.

I know that London is atyprical though.

Twiglets1 · 11/03/2023 11:05

Twiglets1 · 11/03/2023 11:04

I already think half a million for a house would be an absolute bargain - in London. Would struggle to get a 2 bed flat for that in most areas.

I know that London is atyprical though.

Or even atypical

RollerCoaster2020 · 11/03/2023 16:49

Mark19735 · 10/03/2023 12:35

Why can't the correction come in the form of increased wages? That would help everyone. New buyers could afford houses at current prices. People who recently bought would find making their existing mortgage payments more comfortable.

That's the dichotomy. Some people want to do more, make more, earn more and get on in life that way (requires personal accountability and effort) whilst others want everybody else to suffer so that they can benefit at their expense (requires no personal accountability or effort).

I'm all for a correction. House prices stagnate, wages rise faster than house prices, houses relative to earnings correct. Simples.

If wages increase across the country, that's referred to as wage inflation. This leads to general economic inflation which has to be countered by the Bank of England with increased interest rates so it's almost self deprecating. 🤷🏼‍♂️

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