House prices..

Gamefreak501 said:
I want to know why a house, around 100 years ago, maybe less only costed £500-£1000 and you were able to pay that in cash and why now I have to get a mortgage for 15-25 years, in order to securely buy the house and eat up the rest of my earnings in high food prices, high fuel bills and the rising costs of keeping a car, council tax and all that other rubbish we're forced to pay (or it's jail, or a massive fine!)
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That's not really accurate if you look at what the value of old money actually is.

£1000 in 1909 is the equivalent in 2009 (depending what index you use) of:

£74,703.81 using the retail price index
£94,874.85 using the GDP deflator
£393,372.62 using the average earnings
£498,352.26 using the per capita GDP
£682,547.59 using the share of GDP
 
Burned_Alive said:
That's not really accurate if you look at what the value of old money actually is.

£1000 in 1909 is the equivalent in 2009 (depending what index you use) of:

£74,703.81 using the retail price index
£94,874.85 using the GDP deflator
£393,372.62 using the average earnings
£498,352.26 using the per capita GDP
£682,547.59 using the share of GDP
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Granted, I don't know all the figures...but it makes me wonder why things are so damn expensive nowadays and what justification is behind them.
 
Gamefreak501 said:
Granted, I don't know all the figures...but it makes me wonder why things are so damn expensive nowadays and what justification is behind them.
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The best indicator in this instance is probably per capita GDP, which makes £1000 in 1909 worth ~£500,000 today. How easy it for the average person to get hold of £500k these days? If anything, according to these figures, it was even more difficult to buy a house back then than it is now. Consider yourself lucky ;)
 
rghjones said:
Basic supply and demand? Would you sell your car at the asking price of £1,000 when the guy next door was willing to pay £5,000?
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That's a good example.

So really, there are too many people on this planet and we need to lose a few billion for things to even out? Terrible really.



Burned_Alive said:
The best indicator in this instance is probably per capita GDP, which makes £1000 in 1909 worth ~£500,000 today. How easy it for the average person to get hold of £500k these days? If anything, according to these figures, it was even more difficult to buy a house back then than it is now. Consider yourself lucky ;)
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Only a lottery win nets that kind of windfall! Ludicrous really. Still annoys me though!
 
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^Those comparisons are potentially flawed though as you are basing it on the assumption that a house cost £1000 in 1909. In the early 1950s (can't find data prior to that) the average house price was under £2000 so I'd expect it to have been well under a grand 100 years ago.

If we want to make a historical comparison then it needs to be viewed in context of other things as well, take cars for example. Many people seem to take running a car for granted, but to many people from yesteryear that would be considered a luxury or the realm of the elite.

Personally I don't view fuel bills as expensive either for what we get, it's just that they used to be really cheap. We pay around £75/month for Gas, Electric and Water, that seems like a good deal to me considering that keeps us warm, lit, runs all our appliances, drinking water, washing etc etc all for about £2.50 a day? Cheaper than a pint down the pub.

As for wanting to buy a house on a salary under £12k after tax, I think that may be a bit unrealistic for some regions. I don't mean this personally but IMO people under the age of 25 earning well under the median salary (i.e. haven't had much potential to build up savings) can't really expect to necessarily be able to afford a house at that stage in their life. If that sounds a little snobbish, let me say that when I was that age and earning that salary I didn't own my own home either. It was something to aspire to once I'd progressed career wise and built up some savings.
 
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Lets not forget that the average house price in the early 90's was about £65,000 afaik.

Our old neighbour bought her 1 bed flat for about £40k at this time. It's now "worth" £120,000!

That's a bit of a jump to the ridiculous prices now and waaaaay above real value and outstrips the growth in salaries and inflation.
 
FirebarUK said:
Lets not forget that the average house price in the early 90's was about £65,000 afaik.

Our old neighbour bought her 1 bed flat for about £40k at this time. It's now "worth" £120,000!

That's a bit of a jump to the ridiculous prices now and waaaaay above real value and outstrips the growth in salaries and inflation.
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Let's also not forget that (a) the continued regular breakdown of family groups means more homes are required, and (b) house building has not kept up with demand.

There is no rule that says house prices must keep pace with inflation/earnings, especially when all other things are not equal. As for the 'real value' crap, that's just something that doesn't actually exist. The real value of any physical product is the market value.
 
Dolph said:
Let's also not forget that (a) the continued regular breakdown of family groups means more homes are required
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What this has meant is that the price of smaller properties has risen by a greater proportion than that of larger ones. Looking at the Nationwide data, we see that compared to Q1 1993 (index 100):

Flats: 341.7
Terraced: 331.4
Semis: 300.5
Detached: 274.0

It may seem strange to some that the prices of larger homes (semis/detached) have still risen significantly, but don't forget that for families with children, whether there is 1 or 2 parents present probably doesn't make a great deal to difference to the size of property desired. It just means that the absent partner will be out there looking for a smaller property as well. And if the price of smaller properties is rising drastically, then there must also be some upwards pressure on the price of larger properties (to differentiate between them).

This probably also serves to explain why there is a lot of woeful comments in recent years from FTB. Typically a FTB will be looking at a smaller property, and those are the ones which have seen the biggest price increases over the last 15 years or so.
 
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HangTime said:
^Those comparisons are potentially flawed though as you are basing it on the assumption that a house cost £1000 in 1909. In the early 1950s (can't find data prior to that) the average house price was under £2000 so I'd expect it to have been well under a grand 100 years ago.
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Definitely, but it's a good indicator that it wasnt quite as rosy as he thought way back when.
 
HangTime said:
^Those comparisons are potentially flawed though as you are basing it on the assumption that a house cost £1000 in 1909. In the early 1950s (can't find data prior to that) the average house price was under £2000 so I'd expect it to have been well under a grand 100 years ago.
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I previously researched this for a course, using library records etc, a turn of the century victorian 2 up 2 down would have sold for the equivalent of around £900. Earnings of a typical buyer would have been £3-400pa
 
Fair enough :)

According to ONS, the average weekly wage for fulltime employment was £1.40 (equating to £72.80 a year) in 1902, so it certainly seems that housing affordability is now far, far worse than it was back then (over 12x average income for a 2x2 house) - although I haven't taken taxation changes into account.

Did you do any analysis of sales volume? Logically I'm expecting that house 'turnover' was much lower at that time, with people moving about much less frequently than in modern times. I'm also speculating that lower life expectancy was tempered by property being handed down generations and multiple generations living under one roof more often than happens today. Based on what you've said, buying houses must have been something solely for the domain of the wealthy (which is arguably to be expected).
 
The whole FTB thing is overplayed in my eyes anyway.... the reason FTB struggle is not just down to the fact that they have no equity to use as a deposit IMO, it's just the simple fact that they tend to be younger and thus have much lower career earnings to date than repeat buyers. If FTB were finding it easy to get on the property ladder, that would be well, not 'worrying' to me per se, but somewhat surprising at least. Barring the 'crazy lending' of a few years ago (95%+ mortgages etc) It should be inherently difficult for people at that stage of their lives to afford a nice house.

Say you have a couple in their mid20s, both graduates. They likely won't have started a 'proper job' until the age of 22 or so. So they've basically had say 3 years to save up a deposit while repaying some of their student debts. Non-graduates may have started work a few years before, but on average will be earning lower salaries.

Now compare this to people in their 30s, who went through uni in the days of grants and no tuition fees. They have a solid 10+ years of working under their belts and have long since cleared their student debts. It's hardly surprising that it's easier for them to afford a house compared to the newcomers.
 
Dolph said:
Let's also not forget that (a) the continued regular breakdown of family groups means more homes are required, and (b) house building has not kept up with demand.

There is no rule that says house prices must keep pace with inflation/earnings, especially when all other things are not equal. As for the 'real value' crap, that's just something that doesn't actually exist. The real value of any physical product is the market value.
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Regarding inflation and earnings, they would probably have kept pace nicely if banks had lent money carefully rather than giving out credit willy-nilly.

Well that's true about Market value, which also goes to show the UK obsession with property.

My personal assessment of real value is not walking into a 1 bedroom flat which is on the market for £145,000 and thinking "crap me, this tiny shoebox is awesome! It's DEFINATELY worth 6 times my annual salary pre-tax!!!!".
 
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FirebarUK said:
My personal assessment of real value is not walking into a 1 bedroom flat which is on the market for £145,000 and thinking "crap me, this tiny shoebox is awesome! It's DEFINATELY worth 6 times my annual salary pre-tax!!!!".
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Then you need to live somewhere you can buy more for your money. It's nothing to do with the UK obsession with property that the real value of a property is the market value, that is just the value of it, the value of anything is it's marketable value. If you build a new house the build cost is the market cost of the materials/labour + the market value of the land. Your own idea of the intrinsic value of something is what it's worth to you, if it's not worth that much of your salary to live somewhere you don't like then live somewhere else
 
I bought a house in June this year as a FTB. I had a 15% deposit of £26,000. The house has already increased by £10,000 :o It can be done, just save hard. I purchased a nice 3 bed link detached property with a garage in a nice area of Shrewsbury and this is my first house :) Fixed mortgage for 5 years @ 5.2% which is an excellent deal considering interest rates will start to rise in 6 - 12 months.
 
Abraham said:
Then you need to live somewhere you can buy more for your money. It's nothing to do with the UK obsession with property that the real value of a property is the market value, that is just the value of it, the value of anything is it's marketable value. If you build a new house the build cost is the market cost of the materials/labour + the market value of the land. Your own idea of the intrinsic value of something is what it's worth to you, if it's not worth that much of your salary to live somewhere you don't like then live somewhere else
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Of course the obsession has had an impact on market value. It's driven property prices upwards at a ridiculous rate.

The majority of people I've talked to about this have admitted they felt pressure to buy their own home. There is an undeniable mentality in this country that you should own your own home. Fueled by lax lending this drove a big boom in prices.

This is part of the sub-prime debacle. Mortgages sold to people who desperately wanted to own their own home, didn't matter if they couldn't really afford the payments or incomes weren't checked properly. As a result property prices started to climb dramatically as demand increased.

Hey, as long as I can get enough credit to meet the price - who cares! People didn't even have to think about market value during the credit binge. They could waltz into a bank with no deposit and nothing but a paper-round on their CV and get a mortgage.
 
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