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House prices vs. Wages


Ghostly
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I know this is an old chestnut but I thought it would be a good time to look at this again with the current energy price (and everything else) inflation and the potential fallout from Evergrande going on.

In my area of the North East (15 mile radius of Newcastle city centre) there are currently 933 detached or semi-detached houses, bungalows and flats available with a price over £300k.

I believe the average wage in the area is about £30k (probably more like £25k but we’ll be generous - ONS stats https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/employmentandemployeetypes/bulletins/averageweeklyearningsingreatbritain/september2021).

HSBC’s ‘how much can I borrow?’ calculator reckons you can borrow 4.75x joint income so a couple both on the regional average could theoretically borrow £285k. 

Who is buying these houses? There’s a Premier League football team in the region, two lower league professional teams, a Premiership rugby team and a first class cricket team. So maybe 200-300 high-ish earners there. Maybe another 500-1000 company directors / other high earners in the region??

Fee free to post comparisons for your region or other wage news here.

 

Edited by Ghostly
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Not gonna as simple as number of houses = number of earners

Could be quite a few people with equity gains in the existing house, which then allows them to buy the more expensive one. Also people moving from more expensive areas where £300k is cheap

In London at least I think living standards have taken a stealth hit in that people live in much worse accomodations commensurate to their stage in life.

I don't think it was long ago where 'batchelor pad' was a thing, basically a lad getting a 1 or 2 bed flat not long after his first job. Nowadays, it is pretty much standard for couples to live in them, even couples with kids.

Must be loads of people down here with bang average jobs but very expensive houses that they could never afford, aside from having benefited from the equity boost. Of course FTBs are pretty much screwed, they've had to pay top dollars but there has been little price appreciation in last few years.

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@boon - I agree but in order to cash in the equity they have to sell to someone creating even more houses on the market.

Of course, there will be some element of inheritance too but will it really be that large a number when split between a couple of kids? Also when all the boomers die off who will buy their houses?

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Frank Hovis
1 hour ago, Ghostly said:

@boon - I agree but in order to cash in the equity they have to sell to someone creating even more houses on the market.

Of course, there will be some element of inheritance too but will it really be that large a number when split between a couple of kids? Also when all the boomers die off who will buy their houses?

 

I've said that the higher priced houses look to me like "equity swapping" where people with big HPI gains are up into a different level to people trying to buy or move up by using mortgages.

It's definitely a two tier market down in Cornwall with the break point being between £250k and £400k depending on the area. 

As I think that this is what is happening then averages make no sense because they are two different markets.

In Cornwall you can then add a third market of second homes / holiday lets.

I've posted two tiny (four small rooms, no parking) terraced cottages at £430k and £650k which nobody, even in this market, would pay to have as their primary residence; people are buying them to rent them out.

 

Edit: correction, £685k.

 

https://www.cornwalllive.com/news/property/tiny-two-bedroom-terraced-house-5682195

Edited by Frank Hovis
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I have 2 siblings. Will be at least a million each inheritance maybe a lot more by then. I will be moving from a 300k house to 800k.

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Democorruptcy
6 hours ago, Ghostly said:

I know this is an old chestnut but I thought it would be a good time to look at this again with the current energy price (and everything else) inflation and the potential fallout from Evergrande going on.

In my area of the North East (15 mile radius of Newcastle city centre) there are currently 933 detached or semi-detached houses, bungalows and flats available with a price over £300k.

I believe the average wage in the area is about £30k (probably more like £25k but we’ll be generous - ONS stats https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/employmentandemployeetypes/bulletins/averageweeklyearningsingreatbritain/september2021).

HSBC’s ‘how much can I borrow?’ calculator reckons you can borrow 4.75x joint income so a couple both on the regional average could theoretically borrow £285k. 

Who is buying these houses? There’s a Premier League football team in the region, two lower league professional teams, a Premiership rugby team and a first class cricket team. So maybe 200-300 high-ish earners there. Maybe another 500-1000 company directors / other high earners in the region??

Fee free to post comparisons for your region or other wage news here.

 

It's all about lending. That 4.75x joint income enables first time buyers to buy from people who then use the gift of the realised equity coupled with the same leverage, to buy bigger.

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5 hours ago, Ghostly said:

@boon - I agree but in order to cash in the equity they have to sell to someone creating even more houses on the market.

Of course, there will be some element of inheritance too but will it really be that large a number when split between a couple of kids? Also when all the boomers die off who will buy their houses?

Well at least where I am, a vast raft of BTL investors snaffle up loads of the 'first rung' properties, it surely must be the same in every other major city. So that's provided a floor to the market, or at least did, as a 5% yield meant that they could bid up to £350k on a property that the average couple could only afford £250k on their jobs. And that's what's happened. The FTBs could fight back by using BOMAD but a lot simply forced into cheaper properties. Couples living in tiny 1-bed flats, people with young children living in high-rise new builds, a symptom of it.

In the last couple of years the tide seems to have turned a little, but let's face it without higher interest rates it is not going to crash.

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Wight Flight
3 hours ago, Boon said:

Well at least where I am, a vast raft of BTL investors snaffle up loads of the 'first rung' properties, it surely must be the same in every other major city. So that's provided a floor to the market, or at least did, as a 5% yield meant that they could bid up to £350k on a property that the average couple could only afford £250k on their jobs. And that's what's happened. The FTBs could fight back by using BOMAD but a lot simply forced into cheaper properties. Couples living in tiny 1-bed flats, people with young children living in high-rise new builds, a symptom of it.

In the last couple of years the tide seems to have turned a little, but let's face it without higher interest rates it is not going to crash.

Agreed. I have posted the numbers before, but effectively the rules mean that for every £1k you earn you can buy £4k worth or property, but a btl landlord can leverage that £1k to bid £5k for the same property.

Until the rules change, you can always be outbid with your own income.

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14 hours ago, Boon said:

In the last couple of years the tide seems to have turned a little, but let's face it without higher interest rates it is not going to crash.

For the first time in years I start to see the mechanism for a crash. A lot of people are going to start to see their standard of living seriously squeezed over the next year. Energy, food and taxes (I expect council tax to join NI in squeezing people) are going way the fuck up starting now. While wages might rise (and might is doing a lot of work there) a lot of people get a significant amount of their money from various benefits. You would hope the Government surely can't sanction a big rise in benefits while squeezing the pips of workers.

Something has to give and I think the thing that will give are rents. I expect maintenance costs (for those few that bother) are going to be putting the squeeze on as well. We just need HMRC to join the party and start getting the tax they are owed and it will be showtime.

To be honest the alternative is too awful to contemplate. Landlords managing to help themselves to a bigger piece of the pie from workers along with everybody else who is taking big chunks out of their income. Surely the time is here when people have no more that can be taken from them.

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Frank Hovis
1 hour ago, GTM said:

Something has to give and I think the thing that will give are rents. I expect maintenance costs (for those few that bother) are going to be putting the squeeze on as well. We just need HMRC to join the party and start getting the tax they are owed and it will be showtime.

 

I've posted elsewhere that I think cars will go before rents.

As once people have had to give up their cars because they can't afford to run them then there isn't going to be a lot of discretionary spend left.

Council tax, utilities, food and clothes are all essential so the only spend left that can be reduced is rent: people will downsize or move somewhere cheaper and rents will then begin to fall.

I would say that cars are the canary in the coal mine: an area that starts to lose cars is an area in which rents will start to fall.

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Heart's Ease
31 minutes ago, Frank Hovis said:

 

I've posted elsewhere that I think cars will go before rents.

As once people have had to give up their cars because they can't afford to run them then there isn't going to be a lot of discretionary spend left.

Council tax, utilities, food and clothes are all essential so the only spend left that can be reduced is rent: people will downsize or move somewhere cheaper and rents will then begin to fall.

I would say that cars are the canary in the coal mine: an area that starts to lose cars is an area in which rents will start to fall.

My canary is motorhomes. We've reached peak MoHo this summer.  I reckon if you keep a middling one (£30k, 10yo) in a storage yard it's £3000 a year on storage, mot, hab check, tax and insurance before thinking about maintenance or diesel/site fees. 

@spongeh do you have a view as I think you've had MoHos in the past/now?

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23 hours ago, Ghostly said:

I know this is an old chestnut but I thought it would be a good time to look at this again with the current energy price (and everything else) inflation and the potential fallout from Evergrande going on.

In my area of the North East (15 mile radius of Newcastle city centre) there are currently 933 detached or semi-detached houses, bungalows and flats available with a price over £300k.

I believe the average wage in the area is about £30k (probably more like £25k but we’ll be generous - ONS stats https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/employmentandemployeetypes/bulletins/averageweeklyearningsingreatbritain/september2021).

HSBC’s ‘how much can I borrow?’ calculator reckons you can borrow 4.75x joint income so a couple both on the regional average could theoretically borrow £285k. 

Who is buying these houses? There’s a Premier League football team in the region, two lower league professional teams, a Premiership rugby team and a first class cricket team. So maybe 200-300 high-ish earners there. Maybe another 500-1000 company directors / other high earners in the region??

Fee free to post comparisons for your region or other wage news here.

 

One, dont look at asking, look at getting prices -

https://www.home.co.uk/guides/house_prices_report.htm?location=ne1&startmonth=01&startyear=1998&endmonth=06&endyear=2021

I know NE1 is freaky as theres fuckall resi houses in the centre.

Use a semi as the average house.

Gone up less than inflation since 98. Pretty much flat since 20004.

Then look at number of sales. Pretty much on the bottom sicne 2008.

I have a feeling that the big spike you see ~2020 is the High Street Group - see other thread.

Rule of thumb - average house is worth  4-5 mean local income.

Get one for less and you are getting a good deal.

Buy more and you are pushing it *

* - with the rider that if you are buying at less than 60% LTV you can get a very v v low 5 years fix that will allow you to pay off large chunks and make the mortgage meaningless.

Do not expect money from property.

The biggy fro places like Newcastle is not so much the prices-wages, its the the actually real number of people actually working FT.

The pool of actual potential buyers for stuff over 250k is going to be tiny.

 

 

 

 

 

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Frank Hovis
11 minutes ago, Heart's Ease said:

My canary is motorhomes. We've reached peak MoHo this summer.  I reckon if you keep a middling one (£30k, 10yo) in a storage yard it's £3000 a year on storage, mot, hab check, tax and insurance before thinking about maintenance or diesel/site fees. 

@spongeh do you have a view as I think you've had MoHos in the past/now?

Yes, that's a better one.

Cars will then follow.

So much of the price paid for the motorhome is for the coachwork and fittings with people seemingly forgetting that they are buying twenty year old vehicles which have lived outside their whole lives.

My neighbour's van looks immaculate and is some size; it would easily fetch £25k or maybe £30k and up despite its age of about fifteen years IIRC. Yet it's falling apart as the Cornish climate rots it and every year getting it through its MoT costs a fortune in structural welding to the underside.

They are a very good way to burn money; starting with the vast purchase price.

(as opposed to the home converted vans and similar which cost little more than the underlying vehicle)

Edited by Frank Hovis
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10 minutes ago, Heart's Ease said:

My canary is motorhomes. We've reached peak MoHo this summer.  I reckon if you keep a middling one (£30k, 10yo) in a storage yard it's £3000 a year on storage, mot, hab check, tax and insurance before thinking about maintenance or diesel/site fees. 

@spongeh do you have a view as I think you've had MoHos in the past/now?

We sold our motorhome last November, it has reached peak motorhome this summer and been totally mental out on the roads.

We had a Classic Hymer from 1992, price doubled in the 6 years we had it. So considering we had 6 years of holidays, festivals & weekends away I think we rode the wave of motorhome ownership quite well. Going forward I doubt the guy who bought it from us is going to see the same sort of increases, but I'd also not expect him to lose very much over the next few years. All in we've had 6 years of free holidays.

Conversly our friends bought a brand new motorhome in 2018, used it once, decided they didn't like the layout so they traded it in for a different brand new van in 2019 and I think they've used it about 3 times now. It's probably cost them close to £40k in trade in costs and depreciation for those 4 weekends away.

It can either be a very expensive way of holidaying or very frugal, but you've got to buy the right van in the first place.

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1 hour ago, Frank Hovis said:

I've posted elsewhere that I think cars will go before rents.

Cars are complicated. It really depends on where you live, where you work (if you work) and the trade off between how much you could afford if you lived nearer work and gave up the car. There's also the problem that if you are leasing you'll need to find a chunk of cash to actually buy a car outright, so downsizing from new to used isn't really a possibility either.

I agree that ultimately there will be a lot less cars on the road than there are right now and far fewer people will own a car going forward. But in the short term I think people will find it easier to play hard ball with the landlord. I need a car to get to work gets a much more sympathetic hearing in the court of public opinion than I can't reduce your rent as I'll struggle to pay my mortgage.

I agree that the "value" of things like motorhomes and classic cars is about to get marmalised.

Edited by GTM
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reformed nice guy

I was listening to a podcast and it mentioned that 40% of first time buyers need money from their parents to do so.

I had a google and found this:

Quote

one in two (49%) first-time buyers aged under 35 got help from the Bank of Mum and Dad to buy a property this year. Two thirds of these buyers (65%) say they would not have been able to buy without the help of the Bank of Mum and Dad. Without the generosity of family or friends, these buyers would have to delay their purchase by five years on average.

And in 2020, the Bank of Mum and Dad is lending on average £20,000.

https://hoa.org.uk/advice/guides-for-homeowners/bank-mum-dad-help-children-buy-home/

The average great grandparent had 6 siblings, grandparent had 2 siblings, current parents have 1 sibling and the next generations are more likely to an only child. This is a funnel of family wealth concentration.

At some point the parents and other relatives will be too indebted to help that child

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