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-   -   UK Housing bubble about to burst? (http://shoevomit.com/showthread.php?t=3643)

Stagflation 02-05-2010 10:49

UK Housing bubble about to burst?
 

Quote:

This chart – unofficially called the ‘Affordability Index’ – was always viewed as the KEY indicator of the health of the UK property market. Everyone listened to it. From government ministers and City investors to financial journalists and property pros.

The index measures how affordable property is by tracking the ratio between house prices and household incomes. The higher the multiple score, the less affordable property prices are. And vice versa.
  • Any score below 4 – the long-term average of the index – is viewed as a strong ‘BUY’ signal. Put simply, that means property would be a very good investment (see 1983-1988 and 1992-2002 on the chart).
  • A score of 4 to 4.5 is still a BUY sign but, if the trend is heading upwards, it’s also the first warning that the market might be about to get overheated (see 1988, 1990-1992 and 2002-2003 on the chart).
  • Any score above 4.5 is a DANGER sign that property prices are out of kilter with people’s ability to pay (see 1988-1990 and 2003-2006 on the chart).

Quote:

By March 2006 it showed that houses were less affordable than they’d ever been before.

It was a clear warning that the property bubble had to burst.

Sure enough, that’s what happened. Property prices started crashing in October 2007. And people who ignored the affordability warning saw the value of their investments slashed by 21% in just 16 months.

Now fast forward to today...

Property prices have gone up for six months straight... the property ‘cheerleaders’ are banging the drum that the crash is over... that it’s time to start snapping up ‘bargain’ houses and buy-to-let flats again.

The Express even splashed ‘House Price Slump is Over’ all over its front page.

But before you listen to the industry hype and make your next move into property, how handy would it be to use the hidden Affordability data to get an accurate indication of the state of the market?

Very handy, we reckon.

Well know this: Here at MoneyWeek, one of our most trusted City contacts has just provided us with his own complete version of the Affordability Index that’s BANG UP TO DATE.

Quote:

Right now the Affordability Index score is a shockingly high 5.7 (1). And its a long way off the 4 to 4.5 score where property only begins to look attractive.

What’s even more worrying is that since March 2009 the rise in house prices has driven the Affordability score back in the wrong direction!
This is taken from here: http://info.moneyweek.com/special_re...?jlnk=LSL0070# and its not some doom mongers site, but the UK's best selling financial magazine.

I have a couple of friends who have just bought houses, and a couple who are desperate to get on the ladder, this chart makes me think they've made a mistake. There is a difference in being pessimistic about the future of the market and looking at the signs in a rational manner and coming out with a negative forcast.

I could get on the ladder tomorrow, which part of me thinks will make financial sense as I wouldn't be paying a Landlord but increasing equity in a property. However an increasing part of me thinks its best if I don't, and looking at that graph makes me think I'd be mad to buy a property at the moment!

Conjuror 02-05-2010 11:38

Cheers. Good advice. Had been toying with the idea of buying something myself. Will think a bit more about it. Maybe wait until interest rates return to normal, as this will see house prices fall, and as I'll be buying cash, will mean a decent saving.

pies 04-05-2010 19:54

Think it will, its still high considering we are still cunting fucked and what with Greece/Spain coming out with bad debt its easy to see how the markets can fuck up again, its was easily done last time.

Stagflation 04-05-2010 19:57

Said the Chancellor of the Exchequer.

Chuckles 04-05-2010 19:58

I sense another thread where everyone renting says house prices are about to collapse and everyone on a mortgage says they wont :p

Conjuror 04-05-2010 19:58

So what will happen first? Currency crash or housing crash. If you had cash available should you wait or buy now?

Chuckles 04-05-2010 20:04

Quote:

Originally Posted by Conjuror (Post 73065)
So what will happen first? Currency crash or housing crash. If you had cash available should you wait or buy now?

It's the same as it always is with house buying.

If you can afford a mortgage now (and could also cope with an increase in interest rates) then buy now.

For the majority of people, getting a mortgage is a means to buying a home to live in for a length of time, not purely an investment. House prices will always increase over the long term, even if there are blips in the short term.

If you buy now, you can be pretty sure that in 7 years time, it'll be worth a lot more even if it were to drop 15% in the next year.

Malcolm Tucker 04-05-2010 20:04

So hold off on buying a mansion for a few more years?

Oh, ok then.

Booty Hotcock 04-05-2010 20:14

How much of a rise in interest rates do you envisage DD ?

Conjuror 04-05-2010 20:32

Quote:

Originally Posted by Chuckles (Post 73072)
It's the same as it always is with house buying.

If you can afford a mortgage now (and could also cope with an increase in interest rates) then buy now.

For the majority of people, getting a mortgage is a means to buying a home to live in for a length of time, not purely an investment. House prices will always increase over the long term, even if there are blips in the short term.

If you buy now, you can be pretty sure that in 7 years time, it'll be worth a lot more even if it were to drop 15% in the next year.

What if your paying cash though?


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