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I am giving advance warning of a change to my expectations for the bottom of the housing market.
It is being reported that the FSA are going to impose a cap of 3 times income as an affordable loan. I happen to agree with them, but this should have been implemented before the housing boom.
Actually I don't agree with them! I agree that lending should be in the region of 3 times income, but I don't think legislation should be introduced to make it so.
Anyway I have had a target for the bottom of the housing slump of £140,000 average house price according to Halifax in Q4 2009 for several years now. I have based this timescale and figure on various factors, but one of them was a return to lending of 4 times joint income.
This 4 times figure was still higher than the 2.5 times figure used pre Gordon Brown 'debt is good' mantra, but higher than the suggested figure of 3 times.
This 3 times multiplier would have the effect of reducing my target from £140,000 to £100,000 and the bottom of the market would slightly move to Q1 2010.
I was leaning towards a Q1 bottom before this news but this makes it 100% clear.
So to clarify - if new lending is restricted to 3 times income, then my target for the bottom of the housing market is £100,000 in Q1 2010 according to the Halifax figures.
Tuesday 17 March 2009
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5 comments:
I can remember (a long, long time ago) when it was one and half times your salary and if your spouse's salary was taken into consideration, two and a half!
I prefer Nationwide's index, but the wisdom of crowds pencilled in a 42% fall from late 2007 peak, i.e. about £110,000 for Halifax and £100,000 for Nationwide.
This is all so stable door, is it not!
Typical FSA really.
Can you think of anything they were ahead of?
The national impoverishment will be indicated in both falling sterling and falling house prices - it remains to be seen how the final balance will pan out.
As sterling collapses and printing money gathers pace the effect could be hyper-inflation feeding through into pay levels and making your bottom price rise. Alternatively we could see severe price deflation and wages fall which will have the opposite effect.
As I commented here once before (although it was not published) it might be worth thinking in terms of what kind of house for certain typical employees i.e. well qualified teachers and police inspectors in three bedroomed semis etc.
As your money is trashed all indices become surreal, will student loans of say 7000 pounds in 2012 be more onerous than 3000 this year??? (Maybe it should be expressed in the cost of a unit of alcohol LOL!)
I cannot say, can you?
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