Average house prices
I was having a though as to average house prices and earnings and so on for an idea as to what might make sense as the 'stable' cost of a property relative to income.
Naturally as income rises, you'd expect the cost of property to rise in line, because one of the main limitations on the size of mortgage someone can get is a multiple of their income.
The question is what multiple makes sense. If we take an average salary (a little over £25K), then a standard mortgage-lending 4x earnings multiple would be what that single income could get. However, that seems relatively low in estimating what property prices should be, and doesn't allow for multiple incomes or people having existing equity and therefore being able to afford more.
Similarly, taking an average household salary (a little over £35K), with a standard couple's multiplier of 2.5x comes up with a similarly low figure.
Perhaps a 4x multiple applied to average household earnings would make sense. That would give around £140K for an average house price, some 30% under the recent peak.
Naturally interest rate changes and mortgage availablility change the affordability of different prices, as do other economic conditions such as fuel and food prices putting strain on finances. We've had a clear investment bubble combined with historically low mortgage rates moving the price away a historical average, so I'm just pondering what would make a sensible guess as to what the baseline would be which prices will be moving back towards.
Any other guesses as to how to measure the baseline, for estimating where prices will move towards?
Naturally as income rises, you'd expect the cost of property to rise in line, because one of the main limitations on the size of mortgage someone can get is a multiple of their income.
The question is what multiple makes sense. If we take an average salary (a little over £25K), then a standard mortgage-lending 4x earnings multiple would be what that single income could get. However, that seems relatively low in estimating what property prices should be, and doesn't allow for multiple incomes or people having existing equity and therefore being able to afford more.
Similarly, taking an average household salary (a little over £35K), with a standard couple's multiplier of 2.5x comes up with a similarly low figure.
Perhaps a 4x multiple applied to average household earnings would make sense. That would give around £140K for an average house price, some 30% under the recent peak.
Naturally interest rate changes and mortgage availablility change the affordability of different prices, as do other economic conditions such as fuel and food prices putting strain on finances. We've had a clear investment bubble combined with historically low mortgage rates moving the price away a historical average, so I'm just pondering what would make a sensible guess as to what the baseline would be which prices will be moving back towards.
Any other guesses as to how to measure the baseline, for estimating where prices will move towards?