Technorama

I've been looking at the housing market in the UK and I can see we are in-line for a significant correction affect, bringing houses down to just below there market value.

I'm sure this correction will occur over the next four years. Below I've included analysis to support my assertion, let's see how it pans out.

House prices presently stand at six times average earnings, historical peaks like 1990 only went up to five times average earnings. In the dips like 1991-95 it went all the way back down to three times average earnings. (ERM disaster in 1992 hurried this along)

Upto 25% of the market is private landlords, another influencing factor pushing the prices up has been the fact that a typical household is now down to 1.9 from 2.4 (younger generation living alone for longer). Younger generation buying on their own as previous point, in both their own home and rented (from all those private landlords!).

[Edit: 2 Jan 2011, correction ~14% of the market was private rented. Don't remember where the 25% figure came from]

Inflation is high now (RPI, PRIX and even CPI at running at 3%).

The other thing to consider is if there has been a change in the model. The Labour government, in power since '97 has adopted polices to push families where one parent at home to put the children in nursery and after school clubs, allowing both parents to work. This has boosted the income, meaning a combined earnings of six times average salary is more common. This is a shame for the single income house-holds, as they have been squeezed out of the market.

There is significantly more to be gained now by waiting 3-4yrs than buying now and paying off 3yrs of mortgage, because over that period the house price will have gone down 40%!

A house which cost £76,000 in 1980 cost £60,000 2 years later, a 22% reduction. A house which cost £116,00 in 1990, cost £70,000 five years later, a 40% reduction. What we have at present is an unprecedented over speculation on prices, the fall may even surpass the last 40% correction and make that £190,000 home worth only £95,000 in four years time.

Labels: Housing, UK