House Prices vs Salaries

[Funn3r]

About the poll, at the moment almost 58% have clicked "they never will". Would be interesting to know voting demographics by age. What I mean is I have lived through 2 genuine UK crashes but younger people have not. If you've never seen a really filthy yawning money-sucking omfg crash (such as early 90s) I think you're more psychologically inclined to believe things genuinely can't change that much. Why would you if they have been that way your entire housebuying life.

[stop_the_craziness]

I clicked "they never will" and I'm 49. Although I remember the 90s crash I didn't have skin in the game and sort of didn't really understand it to be shamefully honest. Now I'm older and more cynical I understand the props that are holding this housing market up and I just can't see them going away. It's like someone found a magic button that they can't stop pressing.

[Dorkins]

13 hours ago, Funn3r said:

About the poll, at the moment almost 58% have clicked "they never will". Would be interesting to know voting demographics by age. What I mean is I have lived through 2 genuine UK crashes but younger people have not. If you've never seen a really filthy yawning money-sucking omfg crash (such as early 90s) I think you're more psychologically inclined to believe things genuinely can't change that much. Why would you if they have been that way your entire housebuying life.

The life history effect doesn't only work in that direction. Older people have seen houses go from a few hundred £ in the 60s to a few thousand in the 70s to a few tens of thousands in the 80s/90s to a few hundred thousand in the 00s and 10s. People who were born in the 1960s and bought their first house in the runup to the early 90s crash may have had a few years of negative equity but they then saw house price inflation of 20-30% pa in the late 90s-early 00s. All of these experiences will reinforce beliefs like house prices always go up, or the market might drop a bit but you just have to wait a few years for it to resume HPI+++.

By contrast, the younger generation living in private rentals (in some ways Corbyn's core voters) can see that unless something changes they will likely never own property. They may come to the belief that endless HPI has to change because it's impossible for society to continue as it is.

[Si1]

1 hour ago, stop_the_craziness said:

I clicked "they never will" and I'm 49. Although I remember the 90s crash I didn't have skin in the game and sort of didn't really understand it to be shamefully honest. Now I'm older and more cynical I understand the props that are holding this housing market up and I just can't see them going away. It's like someone found a magic button that they can't stop pressing.

Well I don't see a single all consuming crash. Just a series of boom bust cycles with each successive boom hitting a lower peak in real terms then the previous one. Without inflation adjusted charts over decades it will be hard to discern the long term down trend, and the money illusion will cover it up for Joe average.

[bear.getting.old]

Why so many think prices will never return to less than 4x the single mean full time wage?

They have to return to the mean, its the law of economics

[bear.getting.old]

16 hours ago, Funn3r said:

About the poll, at the moment almost 58% have clicked "they never will". Would be interesting to know voting demographics by age. What I mean is I have lived through 2 genuine UK crashes but younger people have not. If you've never seen a really filthy yawning money-sucking omfg crash (such as early 90s) I think you're more psychologically inclined to believe things genuinely can't change that much. Why would you if they have been that way your entire housebuying life.

I have lived through the crash of 89-95. Though I didn't understand it, I just remember back then buying a house was a dirty word and you had to be mad to buy one then as they were falling and negative equity etc. It will happen again. Its like 2007-2009 never happened at the moment! People have short memories. Ironically its the interference in the market by BoE and government (FLS, BTL, HTB, ZIRP) which has actually driven up asset prices including houses to unrealistic levels. I hate these socialist conservatives.

Edited May 12, 2018 by bear.getting.old

[dropbear]

1 hour ago, bear.getting.old said:

Why so many think prices will never return to less than 4x the single mean full time wage?

They have to return to the mean, its the law of economics

In a free market, yes. This is not a free market.

4x wage in London is about £180k, a 70% drop from current prices.

[maverick73]

27 minutes ago, dropbear said:

In a free market, yes. This is not a free market.

4x wage in London is about £180k, a 70% drop from current prices.

Salaries will never catchup to affordability.... The govt props and low interest rates are the root cause of this madness. Attempting to make these prices normal in the mind set.

[Dorkins]

1 hour ago, dropbear said:

4x wage in London is about £180k, a 70% drop from current prices.

I'll be disappointed if London house prices only get down to £180k, £130k would be more like it.

[reginekierkegaard]

On 12/05/2018 at 18:05, Dorkins said:

I'll be disappointed if London house prices only get down to £180k, £130k would be more like it.

We need to think about this the other way round. I don't think the house prices are overpriced. It is the salary that is underpriced. Years of quantitative easing is not driving the asset bubble as much as we thought, it is driving all our wages down. It looks expensive because we are all earning less.

[longgone]

On 12/05/2018 at 18:05, Dorkins said:

I'll be disappointed if London house prices only get down to £180k, £130k would be more like it.

when was a house in london 130k 25 years ago ? no chance

[Dorkins]

8 hours ago, longgone said:

when was a house in london 130k 25 years ago ? no chance

Average house price in London in 1996 was £68k (Land Reg). Nominal London wages in 2018 are less than double what they were in 1996.

What difference does it make how many years it's been since ordinary London house prices were affordable to ordinary London residents? Either people can show up with the money or they can't.

Edited May 14, 2018 by Dorkins

[Dorkins]

8 hours ago, reginekierkegaard said:

We need to think about this the other way round. I don't think the house prices are overpriced. It is the salary that is underpriced. Years of quantitative easing is not driving the asset bubble as much as we thought, it is driving all our wages down. It looks expensive because we are all earning less.

Maybe so, but there's not much sign of wage inflation in the system. Could happen I guess. Also wages seem reasonably priced against pretty much everything that isn't purchased with credit (food, fuel, manufactured goods etc). My guess is that the collapse of the credit bubble will bring down the prices of things bought with credit (houses, cars) more than it will increase wages.

[longgone]

3 hours ago, Dorkins said:

Average house price in London in 1996 was £68k (Land Reg). Nominal London wages in 2018 are less than double what they were in 1996.

What difference does it make how many years it's been since ordinary London house prices were affordable to ordinary London residents? Either people can show up with the money or they can't.

makes no difference anyway because its never going to happen.

no decent house was 68k in 1996 maybe some shabby area terrace house.

[Oki]

On 12/05/2018 at 14:30, bear.getting.old said:

I hate these socialist conservatives.

TIL bucketing the nations wealth to the few at the top is socialism.

Feudalism is what the conservatives are about.

[maverick73]

18 hours ago, Oki said:

TIL bucketing the nations wealth to the few at the top is socialism.

Feudalism is what the conservatives are about.

Wealth used to be savings and cash. Now its bricks... although you cannot barter for goods and services using bricks ?

Looking forward to the Wealth Tax ?

[Oki]

How much is a brick worth?

[adarmo]

On 12/05/2018 at 14:25, bear.getting.old said:

Why so many think prices will never return to less than 4x the single mean full time wage?

They have to return to the mean, its the law of economics

That's not the metric though. It's the multiple of household income that's important and with the rise of gender equality and more women having the freedom to enter the workplace household income increasingly includes two incomes.

[Si1]

1 hour ago, adarmo said:

That's not the metric though. It's the multiple of household income that's important and with the rise of gender equality and more women having the freedom to enter the workplace household income increasingly includes two incomes.

And with increased time in education and longer retirements plenty of homes have no incomes

[adarmo]

46 minutes ago, Si1 said:

And with increased time in education and longer retirements plenty of homes have no incomes

increased time in education could mean people buying later but with higher salaries (assuming more education trends to higher earnings). In fact people going to uni actually increases demand for cheap nasty housing. ...

Are people getting longer in retirement? The average life expectancy has stopped increasing and i think has fallen marginally of late. Valid point but i can't find data on it.

[tomandlu]

Regarding the impact of women in the workplace, Elizabeth Warren's worth a listen:

[iamnumerate]

On 14/05/2018 at 07:20, Dorkins said:

Average house price in London in 1996 was £68k (Land Reg). Nominal London wages in 2018 are less than double what they were in 1996.

What difference does it make how many years it's been since ordinary London house prices were affordable to ordinary London residents? Either people can show up with the money or they can't.

If you look at affordability it is not as bad as if you look at the price to wage level.

Not saying that it is good, just not as bad, still awful.

[iamnumerate]

On 07/05/2018 at 16:24, Si1 said:

Correlation is not causation.

But that is not refutation. For correlation to be causation there has to be some sort of mechanism to explain. In the case of immigration there is the mechanism of supply and demand, also that places like Durham have had less immigration and less HPI.

This is an example where correlation is not causation

Quote

The faster windmills are observed to rotate, the more wind is observed to be.

Therefore wind is caused by the rotation of windmills. (Or, simply put: windmills, as their name indicates, are machines used to produce wind.)

https://en.wikipedia.org/wiki/Correlation_does_not_imply_causation#Examples_of_illogically_inferring_causation_from_correlation

Some people blame all everything on immigrants even raising the woman's pension age (it was decided before mass immigration happened so not true), this is illogical.

However saying that mass immigration creates zero problems is also illogical. Almost everything has positive and negative consequences to some degree.

[SOLZHENITSYN]

On 05/05/2018 at 05:41, nome said:

Surely that should read any single PARENT earning less than £19k a year is being subsidised?

As a single, childless person earning less than £19k a year I certainly don't feel like I'm being subsidised when looking at all the benefits that singles (and couples) with children get.

Have you ever used the services of a doctor/nurse/dentist? Go take a look at how much a private appointment would cost. Or look up the cost of any medication you’ve had on prescription. The truth is that many people’s lives are subsidised. I don’t think this is necessarily a bad thing by the way. But at some point there does need to be a serious conversation about how this is all funded.

We cannot continue to have the majority proceeds of productive labour captured by the rentiers/landowners. Imagine the things we could have achieved if the capital being lost to land rents / prices had been directed toward innovation / technology / medical research etc etc

Instead we are apparently quite willing to sacrifice a life’s labour for nothing more than a few bricks of clay to keep the rain off our heads. What a backwards world we live in.

[SOLZHENITSYN]

On 12/05/2018 at 14:25, bear.getting.old said:

Why so many think prices will never return to less than 4x the single mean full time wage?

They have to return to the mean, its the law of economics

Not really. Why should they return to long-term average of 4.5x a SINGLE salary? Why a single salary now that bank lending (which is the ultimate control on price) is based on two incomes?