The bubble may have burst, but property still looks overvalued when compared to average earnings. Currently, the ratio of house prices to incomes stands at 4.6. The historical average, which includes the recent bubble, is more like 4. A reasonable ratio would be something closer to 3.
2 comments:
This is way too simplistic. The 3x "reasonable" level prevailed in the postwar decades when there was rent control so no new lettings, no significant immigration, no significant black economy, significant supply of new housing (social and private), savings had been eroded by penal taxation and inflation, there were few multi-earner households, and London ex Mayfair wasn't a destination of choice for the world's newly affluent. Housing prices are a highly complex multivariate problem, the price/ earnings ratio has no proven predictive power and really we need something better than this.
"This is way too simplistic. The 3x "reasonable" level prevailed in the postwar decades when there was rent control so no new lettings, no significant immigration, no significant black economy, significant supply of new housing"
Looking at the picture above 3.5X was in 1994 1996 1998 2000, far away from "post war"...
After some time we'll get there again...
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