Monday, 14 March 2011

Up or down

The ratio of house prices to average earnings have come down dramatically since the peak of the housing bubble However, the ratio remains high by historical standards.

An average of three seems reasonable to me. Since incomes are unlikely to increase significantly over the medium term, that ratio would require a further sharp decline in prices.


Anonymous said...

Whilst I was on the tube today I noticed an advert by The Economist which stated that the average London house price is 9 times average earnings; is it possible the housing bubble is more pronounced in some areas than others because this seems an unfeasibily high 'market price'? And how much is the extremly low interest rate contributing this, and why has Osborne just annouced 'help' for new homebuyers? I'm not an expert in economics but it seems fishy that the government favours one asset class over another. Why don't they just increase interest rates and stop meddling so that inflation can be controlled and house prices can find their true value. I'm interested to hear your opinion

Anonymous said...

Hi Anonymous - I think what that very high ratio shows is that there are so many young professionals in shared rented accommodation, where they can afford to rent a room but could never afford to buy the whole flat or house. Three or four to a house or flat then gives the average of nine times an individual sharer's income. Blessings, B. in C.

David Robertson said...

Is the dream of owning property a distant memory for the younger people of today? Is it not all about how you can pay off the property. Possibly people need to think outside the box and consider how they reduce their repayments on the property – the obvious is to get the best interest rate. However there are other ways as well. People need to be creative, whether it’s renting out a spare room or renting out a car park that you never use. When times are tough, the smart think of different ways to overcome the hurdles.

tckevin said...

As a professional person who missed the boat to "winning" a house in the great Thatcher sell-off, I'm resigned to never owning a property. My 3 pensions have been robbed, and I look forward to a bleak future, when I can finally retire in 15 years or so at the age of 70.
"And so what?", I can hear the cry. The 'what' is when did "property" change fundamentally from being a sheltered place of work or of abode, to an investment vehicle just for profit?