An interesting statistic shows that last year’s house price falls have made average house prices more affordable.
At the peak of the boom in July 2008, the house price to earnings ratio reached a record of 5.86. Now, the ratio of house price to earnings has fallen to 4.56 (according to statistics by HBOS). This is still above the average for the past 20 years with an affordability ratio of 4.0 .
From a very low base in September, HBOS reported improved mortgage take up rates in October. However, there appears no end to the shortage of mortgages and house prices continue to fall at record pace.
2009, is likely to see a further decline in the affordability ratio – despite a recession and falling incomes.
Recent rate cuts are unlikely to prevent a sharp contraction in the economy – possibly 2 – 6% in real terms. However, house prices are likely to fall by more as the recession and shortage of mortgages keep demand low.
1 comment so far ↓
Very surprising that ratio is falling so quickly. Shows the power of earnings inflation I guess. Not much sign of these big falls in my London postcode however. Grr!
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