Saturday, 16 August 2014

UK house prices are now about seven times earnings

Shaun Richards at Mindful Money has looked at Halifax' recent statistic that house prices are 5.02 time earnings...

Putting it another way using median earnings for everyone the ratio of earnings to house prices is now 6.9.

Well worth a read.

I left a comment as follows:

There is another reason for going with your 6.9 figure and that is because you have to compare like with like.

Halifax' £186,000 house price is not the average (that's about £260,000 according to the ONS) it appears to be the median.

So you can compare median house price with median wages = 6.9

Or you can compare average house price with average wages = 7.4


Turnbull2000 said...

House prices to average salary is an obsolete benchmark. It has been for a decade. It's now about monthly affordability. With dual income, 30 year mortgage terms and low interest rates becoming the norm, a couple on 25K each can afford a property of £250,000. I've long expected UK house prices to settle at 6-7x average salary, perhaps 10x in premium areas.

Mark Wadsworth said...

TB: "With dual income, 30 year mortgage terms"

Back in the day, it was single income and ten to fifteen year mortgages, subsidised with MIRAS.

I benefitted from this (1998 - 2008, thank you very much, even if it was 6.9% interest) and I know what I'd prefer.

Piotr Wasik said...

right, so no hope for rates rise, new norm is alive and well! latecomers are doomed

Mark Wadsworth said...

PW, wrong. Latecomers can just vote to turn back the clock.

Sackerson said...

Monthly affordability - until interest rates rise.

But I've yet to see exactly how these house prices are calculated. Skewed by Russians and Chinese in the South-East?

Mark Wadsworth said...

S, a year ago I downloaded all the individual sales data for 700,000 sales from HM Land Reg for 2012, the simple average was about £250,000.

Sackerson said...

Now check the median after exculding the top and bottom 5% or so - any difference?

And what about regional differences in pay?

Mark Wadsworth said...

S, of course there is a difference.

The median (for England & Wales) was £200,000 which happens to be Swindon.

You know as well as I do that house prices and rents just about soak up regional pay differences, so by and large, tenants and first time buyers have the same disposable income after housing costs wherever they live.

Sackerson said...

Consider me duly squashed.

All England aspires to the condition of Swindon? Explains emigration.

Piotr Wasik said...

MW, "turning back the clock" - while I can't vote in general elections, worry not, I spread the word among my tribe!

James Higham said...

As earnings around here are about £14 000 pa, then the house would cost £98 000. I don't know any which cost that.

Looking at a most common salary, as distinct from the average, distorted by high earners and not affected by non earners, take the average shopgirl up to the woman at the dole office.

That's where the £14 000 came from. You might correct me but I thought house prices in London were around £200 000?

Mark Wadsworth said...

JH: "I thought house prices in London were around £200 000?"

Yes they were - ten years ago. Nowadays the average home is something like £450,000, and that's the average of flats and houses.