‘A Fundamental Difference Now’ For The Housing Bubble
The Associated Press reports on Poland. “House and apartment prices in Warsaw and other leading Polish cities have spiraled upward, a boom driven by low interest-rate mortgages, housing shortages and foreign speculators snapping up real estate as investments.”
“‘The demand is generally driven by local people but there are buyers from Spain, the U.K. and Ireland buying new constructions in bulk; 10, 20 or 30 apartments and sometimes even more,’ said Bogumil Rutkowski, a manager at a real estate agency in Warsaw. ‘We’ve had a boom since the second half of 2003, but it’s just been accelerating more and more lately.’”
“‘The foreign speculators are pushing the bar up for normal buyers,’ said Andrzej Halesiak, an economic researcher who has studied the issue. Some of the difficulty is offset by easily available low-interest loans, but most house and apartment hunters these days still grumble.”
The Guardian. “First-time buyers risk over-stretching their finances by borrowing 3.24 times their income to buy their homes, the highest amount ever, it was announced today.”
“The figures for July, published by the Council of Mortgage Lenders, follow a stark warning from Citizens Advice that 770,000 buyers in Britain had defaulted on their mortgage, and that 13% of 21- to 24-year-old homeowners had missed at least one mortgage payment in the past year.”
The Sydney Morning Herald from Australia. “Falling property prices are always bad news for home owners, especially when they result in your home being worth less than you paid for it. When negative equity coincides with rising interest rates and record levels of household debt, as it does now, many households could find themselves in real trouble.”
“David Bell says that in the past clients who got into financial bother with their credit cards or had trouble meeting their mortgage repayments could always sell their house as a last resort. ‘There’s a fundamental difference now, house values have dropped and people simply can’t sell their home,’ says Bell, who is a counsellor in south-west Sydney.”
“Solicitor Katherine Lane agrees that negative equity is pushing more people over the financial precipice. ‘The difference this time is that we all carry a lot more debt; it’s a powder keg,’ she says.”
“The Herald reported a case last month where a house at St Clair, in Sydney’s west, sold for $260,000, 42 per cent less than its previous sale price at $450,000 in 2003. This was a mortgagee sale after the owners could not meet the interest payments on the $405,000 they borrowed to buy the house. There was just one bidder on the day.”
“Carolyn Bond, of the Victorian Consumer Credit Legal Service, reports a marked increase in calls from people facing court action to sell their house. Bond says fringe lenders are often to blame. Typically, these non-bank lenders provide short-term, interest-only loans which appeal to desperate borrowers unable to get credit elsewhere. Bond says many defaulters end up having their house sold within six months. ‘If they couldn’t pay their previous mortgage it’s unlikely they will be able to afford this one,’ she says.”
“According to Australian Property Monitors, house prices have fallen by an average of 10 per cent since the market peak in 2003-04. There is wide variation, though, across the country and even within cities.”
The Australian. “In the US and down suburban streets colourful political posters are popping up on front lawns. But there’s something else competing for attention as you drive by: ‘For Sale’ signs. Lots of them.”
“The US housing bubble has started to deflate and Australia’s experience is a leading indicator. The headlines in newspapers across the US, filled with anxious quotes from buyers who bought at the top of the market, could be Sydney or Melbourne a year ago.”
“Properties are staying on the market longer. Sellers are dropping their prices. The hot markets in metro areas up and down the west and east coasts, where home prices regularly fetch more than $US1 million ($1.33 million), are not just shaving tens of thousands of dollars off the price, but hundreds of thousands.”
“It’s worth remembering the US housing market has been one of the engines of the US and the world economy in recent years. Americans have used their houses as an alternative bank, effectively extending their mortgage to take advantage of the ever-increasing value of their homes.”
“The contagion that follows a US housing bust are easy to understand: if there’s less demand for Chinese goods, that in turn means less demand from the Chinese for Australia’s raw materials. ‘One of the things that might make it more difficult in the US, than in Australia, is that just as Australia’s housing market was sinking it got a big lift with China and the demand for commodities,’ adds economist Mark Zandi.”
“‘The underlying economy in America might not be as strong with the same sources of growth to replace housing,’ he said.”
“There is likely to be some belt-tightening. And if petrol prices stay high, it means the US consumer consumption model, which has helped underwrite global growth since the collapse of the dotcom technology bubble in 2000, is looking decidedly wan.”
‘ELEANOR HALL: Why are Australians still borrowing on housing? STEPHEN LONG: Well, there’s a number of possible reasons there. The west is its own creature at the moment, because basically the mining boom has led to a spin-off construction boom, and we’ve seen house prices go up 35 per cent in the year, although that could be topping out.’
‘ELEANOR HALL: Do we have any idea of how many people will be in trouble though, if rates go up again? STEPHEN LONG: Well, that is the $64-million question. Probably about 4 per cent of households are highly indebted, paying out 28, 30 per cent of their income to service loans. The rub is, though, that on the city fringes there are a lot of people who have been getting finance that is right at the limits of what they can afford to service, and with the rates rise to come, now almost certain to come, so we’re looking at people being well under water.’
‘And some of the non-bank lenders, and this is where the real problems are emerging, not with the banks, but with the non-bank lenders, often operating through mortgage brokers, and there is strong evidence with rising default rates in these sub-prime, non-bank loans that they’re the people who are lending to people who are getting into trouble and over-committing.’
“Probably about 4 per cent of households are highly indebted, paying out 28, 30 per cent of their income to service loans”
Heck, 30% of gross income for a mortgage seems downright conservative for California… I’d buy now if I could do that…
- “The Herald reported a case last month where a house at St Clair, in Sydney’s west, sold for $260,000, 42 per cent less than its previous sale price at $450,000 in 2003.
Fast forward to Ca September 2007
What a beautiful symphany. I can’t wait for it tour in SoCal.
“What a beautiful symphany. I can’t wait for it tour in SoCal. ”
Me Too! I have had my share of Baldies in my life, and doing my best not to block them all with my face!
Good thing US prices will bottom out next year, then resume their upward ascent, according to David Seiders of the NAHB. Is it reasonable to predict that the longest and most extreme period of real housing price inflation in US history will be followed by a soft, shallow landing?
———————————————————————————
Housing decline to bottom out in mid-2007: NAHB
Widespread housing price bust unlikely, economists say
By Robert Schroeder, MarketWatch
Last Update: 2:13 PM ET Sep 13, 2006
WASHINGTON (MarketWatch) — A downswing in home sales and building should bottom out sometime during the middle of 2007 before recovering in the latter part of 2008, a home-building industry economist said Wednesday.
In the meantime, said another economist, consumers shouldn’t expect a “widespread” bust in home prices as some of the strength begins to dwindle from regional housing markets.
The National Association of Home Builders’ David Seiders and the Federal Deposit Insurance Corporation’s Richard Brown were among four economists testifying Wednesday before two Senate Banking subcommittees’ hearing about the housing bubble and its implications for the U.S. economy.
All four — including analysts from the National Association of Realtors and the Office of Federal Housing Enterprise Oversight — agreed housing activity is slowing. Economists added the slowdown poses some risks to the U.S. economy but that a drop-off in activity isn’t nationwide.
Seiders said a “below-trend” performance for home sales and building is likely over the next two years.
“The downswing in home sales and housing production should bottom out around the middle of next year before transitioning to a gradual recovery that will raise housing market activity back up toward sustainable trend by the latter part of 2008,” Seiders told the subcommittees in prepared testimony.
Brown, meanwhile, told senators that historically, widespread price busts haven’t necessarily followed price booms.
But, he cautioned, today there are more boom markets than in the past, and more consumers who have borrowed using “nontraditional” mortgage products, like interest-only loans.
“Borrowers who took on nontraditional loans as a means to afford a more expensive home may be particularly vulnerable to adverse housing market conditions,” Brown told the subcommittee in written testimony.
Heckuva job, Brownie!
http://tinyurl.com/fe6zz
Does anyone know if Robert Shiller was invited to this or any of the upcoming hearings?
I think it is good to have these optimists (who obviously did not follow any history lessons) before the senate subcommittee. Otherwise politicians would start working on a nationwide bailout plan right away (before the elections).
Please! Please Lord stop this thing!
Prices are going through the roof in Poland? What? Are all the Polish people from Chicago returning home to “rediscover their roots”? Uh, doubt it. (I can say this b/c I came from one of those neighborhoods).
The Rolling Bubble and Attack of the Equity Locusts has now come to roost in Poland. O.K, whatever.
Was in Krakow in February. Agree with the article, price are up, they are building like crazy. The bubble is as out of control there as well.
Many ex-pats are buying ‘pied-a-terres’ in Krakow and Warsaw. Poland as well as the U.S. allow for dual citizenship, so property ownership is easy for citizens and children. You can pick up a fantastic apartment in a new building for under $100,000. Anything comparable would easily list for $500-$1m here.
I hold dual citizenship with Poland.
grim
Grim,
Isn’t it sad though? People from the UK, Spain, Ireland running up prices on the locals. Sheesh. We can’t let anything be. Over on patrick’s we did a thread on Just how far does one have to go to escape the clutches of the Bubble and got some distressing feedback from our “All-Star International Cast”.
One gal posted pictures outside of Shanghai with subdivisions so big they could be seen from space! Sellers in the Philippines are not bashful to ask for MAJOR dollars and all of this feeding off of our bubble.
Hey! If these Ex-pats are flush with bucks, why not soak ‘em?
Everybody wants ta’ get in on the act!
Jimmy Durante?
“$500-1m here”
Where? In Manhattan? The same place in the middle of the Midwest would probably be the same price as in Poland.
I don’t know why the above comment showed up here.
No No what is the price? 50cents, a coke bottle and 3 magic bean’s?
it is completelly ridiculuos. All these speculators are buying homes in Warsaw as they think homes will go up to catch up with rest of EU. But in reality these prices are very similar now so don’t know what more they are expecting.
Housing bubble is global and still spreading
John,
Agreed. Or at least on the “expectations of sellers” part anyway!
Hey! With as many Polish people as I know maybe I should get dual citizenship and a realt-whore’s license in Warsaw and I could start knocking down some major bucks!
(Grim, could you translate please?)
Real estate in Warsaw Only Goes Up!
now that the hype is out in the open you can bet that the well-connected are offloading their Warsaw properties (purchased many years ago) with huge profits to the general public. But I’m sure that further away from the big cities big price gains are still possible, as long as this bubble keeps growing. Just like in all other EU countries, (local) fundamentals do not apply, it’s all about easy money.
There are some fundamental causes of the boom in Poland (e.g. EU accession) but mostly it’s just a mirror of the global credit bubble. With banks willing to lend astronomical money, the prices get astronomical.
I chuckle when I read about dangers that some fraction of people took ARMs in the USA. In Poland, virtually zero mortgages are fixed rate and 75% are in Swiss francs because they are only 3-3.5%, instead of 5.5% in local currency and many people cannot afford even those ARMs in local currency. Not only they risk the interest rate increases but also the exchange rate changes. So far, this strategy played well but it is definitely risky.
It gets worse. Recently entertained some people from an oil “commodity” wealthy Caribbean island and its happening there too. This bubble is global. Moreover, many have said before me and as cited in Ben’s links from all across the globe, its related to easy money.
and how about in Lima, Peru as well. i love living here but this is crazy … Banco Continental is offering 120% mortgages … just so you can get that flat screen and furniture that you need. … this is a one show town, so i just hope the price of copper hangs up there for a while. and if you plan on coming here to live, just be prepared to invest in your own security setup.
No offense, but I lived in Ecuador for a couple of years, and I would not choose to live anywhere in Latin America.
a friend of mine is a developer in Ecuador. They are expecting a huge increase in RE prices now that mortgages are becoming available to the general public there as well. And just like everywhere else, in some of the big cities the prices are already at similar level as in big US/EU cities.
thanks to the ECB the European bubble is now spreading even beyond the EU borders; they will continue to inflate property prices until local people in every nook and cranny of Europe are ‘priced out forever’ thanks to the equity locusts.
I’m sure most of the increase comes from speculators from Old Europe that have made enormous gains and are pyramiding on top of that: first in the Netherlands and the UK, then in France and the Spanish costas, after that in Ireland/Belgium/Italy etc. and now in the Balkan countries, Eastern Europe, Turkey and Dubai. Usually some of the well-connected locals (politicians and business people) get their ‘fair share’ of the gains as well. At the same time, because the bubble keeps spreading and the speculators can draw more blood, the ridiculous price levels in UK, Netherlands etc. can keep where they are because the speculators in these markets are supported by gains elsewhere in Europe. And of course, all these gains are the losses for everyone else who is not speculating in EU real estate, it’s destroying the economy even before the bubble bursts.
There’s even a RE bubble in Ukraine. Yes, one of the poorest countries in Europe (much poorer than Poland), with a rapidly declining population.
Actually, the ordinary people in E. Europe will benefit in the long run from this. RE will become grossly overbuilt, and once the bubble ends, the RE will be sold or rented to locals at prices they can afford.
end bold!
end bold
test1 test2
http://tinyurl.com/l6d4r
Realtors the new super stars of TV. Warning watching this show may make you sick.
If anyone does not truly despise realtwhores, one episode of Million Dollar Listing will do the trick.
I saw that show for the first time on Labor Day weekend when I was visiting my sister. That show had me rolling! Everyone thinks they are a superstar because they sell these million dollar homes. Unbelievable!
Love that show! Saw the second installment last night. The greed of all these people makes me sick. That guy who wanted almost a mil for house with a leaky roof, stuff growing on the roof and several other problems. It was a real shame he didn’t get stuck holding 2 mortgages. As for the witch with the 3mil home, I hope you get stuck there for another 2 years. Let’s see how things are when the resets occur. You shoulda taken the 2.3 mil and run back to Tennessee. You could’ve bought a real mansion, no McMansion, there for a lot less money.
Bottom line is I can’t help but watch rooting for everyone to get it stuck to ‘em. I also can’t help but poke fun at people who think they can retire at 35 or 40 based on selling a WAAAAAAAAAAAAAAAAAAY overpriced POS. I am so sick of these people. Whatever happened to hard work and savings and thrift in this country? Why do we have so many with entitlement tattooed on their forehead (or at least should have it on their forehead)?
“I also can’t help but poke fun at people who think they can retire at 35 or 40 based on selling a WAAAAAAAAAAAAAAAAAAY overpriced POS. I am so sick of these people. Whatever happened to hard work and savings and thrift in this country? Why do we have so many with entitlement tattooed on their forehead (or at least should have it on their forehead)?”
This is similar to what I expressed on a post a few days ago and is what I feel is the root of the backlash on Ben’s Excellent Blog towards FBs. It’s the arrogance factor of the FBs coming back to bite then in the ass, just like their ARMs, IOs, teaser rates and neg. amort.
WOW! What a couple of pigs. Remember, you can not polish a horse turd.
Dia and Ray Schuldenfrei…?!?! Funny coincidence
Soon, we’ll experience Schadenfreude
scha·den·freu·de
Pronunciation: ’shä-d&n-”froi-d&
Etymology: German, from Schaden damage + Freude joy
: enjoyment obtained from the troubles of others
Think they’ve heard this one, yet?
The real meaning of the name in German is a lot more funny. It literally means “debt free”.
What irony when we consider their customers……. A young, single (homosexual) purchased a $900k house. That seems like a lot of money for a graphic artist……..
Note that this was filmed during the bubble peak in 2005, or possibly slightly off the peak in the fall since they are getting home inspections, etc.
Sir - I was raised on a farm in Indiana. The correct word is ‘Hogs’.
“Remember, you can not polish a horse turd.”
not even a polish horse turd.
Wow, interesting to see what other countires consider high debt levels. A Mortgage 3.24 times greater than annual income is high in the UK? 30% of income going to debt service is “highly indebted” in Australia? Those were the conservative numbers here in the US!
Pre-Boom in Bakersfield we were at 2.5 times income (1998). Today we are at 7.9 times income. (Median Income to Median Homes Prices)
I thought the same thing when I read that. It is different here, and we should not look to other countries’ “soft landings” as predictions of what’s to come here.
Mortgage interest for ones primary residence is not tax deductible in Australia - that makes a difference.
Or in the UK. We lost that tax break some time ago.
When they talk about the amount used to service debt, they are only referring to interest paid, not the principal, insurance, tax etc.
principal, what is this term?
Try the Bahamas..no mtges..deals must be cash.
in Netherlands 8-10x income is not unusual for current mortgage; but it’s relatively high because of the high HMD in Netherlands. If you want to spend 5x median income no chance here, you would have trouble finding even a tiny POS apartment at that price in the most remote areas of the country.
On the other side, I guess that many UK mortgages are at 3.24x STATED income (because 3.25 is the official maximum?). Stated income which is probably 2-4x real income
3.25x is not the official maximum - we don’t regulate that sort of thing.
As a general rule, standard maximums are c.4x income, with income being base salary + 0.5x last year’s bonus.
In terms of self employed mortgages, you have to produce accounts and tax returns generally, although I am sure that there are some sub-prime lenders out there getting more agressive.
3.24 times in UK! I was there in July. Stopped for lunch in a small ttown in Newcastle area. Looked at one of the RE shopwindow. A 70’s POS (1000sf at most) was about 200,000 pounds (about $400k). Same house was about 40-50k pounds 10 years ago. Then passed by an employment agency shopwindow (yes, they showed jobs in their shopwindows!), Customer Service Rep job was about 15k pounds a year (I used to make more than that about 15 years ago), and this was the ghighest paid job on the display. With that type of money you should not get more than 50k pounds mortgage.
Ben,
Sent a small donation today using the Paypal Tab on right…..
A negative amortization loan for your Best Buy flat screen TV…
“No Interest for 36 Months on Home Theater $999 & Up
“Required minimum monthly payment is greater of $10 or 1% of balance plus billed finance charges plus any late fees (if applicable). Interest will be charged to your account from the date of purchase if plan balance is not paid in full within 36 months or if minimum monthly payments are not made.
“Deferred Interest Info: Program A: Variable Standard APR = Prime Rate + 14.4 percentage pts. (22.65% as of 09/01/2006).
Variable Default APR = Prime Rate + 18.4 percentage pts. (26.65% as of 09/01/2006). Standard Min. APR 19.8%. Default Min. APR 23.8%.
“Program B:
“Variable Standard APR = Prime Rate + 17.4 percentage pts. (25.65% as of 09/01/2006). Variable Default APR = Prime Rate + 21.4 percentage pts. (29.65% as of 09/01/2006).
Standard Min. APR 23.15%. Default Min. APR 27.15%.”
I think consumers are clueless about the fact that they’re racking up interest over 36 months. They think they’re getting a bargain. These sales tactics alone could explain the recent increase in sales at Best Buy.
God I love this kind of stuff.
Why?
Because when I DO make those big purchases, which isn’t all that often… I get KILLER TERMS because of all the suckers who get screwed. Balance paid in full in month 35 after accruing interest.
Essentially it’s a ~25% discount for me.
Better pay it off in month 33. I did one of these deals with a credit card as a newly wed - wife had debts. It was a 6 month no interest deal. The first month lasted about 6 days, and the last month was only 20 some days. I hate liars.
And be careful if you make the last payment over the phone. They will secretly add a “phone processing charge” of $5 or so, but since they won’t be sending you te statement for a month, you don’t actually know until it is too late that you didn’t pay it all off in full.
They hit you with all the interest charges.
And then there’s the lost payment scam that takes FOREVER to get to them, allowing them to get you with the $35 late fee.
These people are slime.
In fact, it’s not a bad idea to ‘accidentally’ overpay when you make that last payment. It can sometimes be a bitch collecting the credit balance, but at least there’s no question of breaching the loan conditions.
if this is not usury then i don’t know what usury is….
Usury is an anti-capitalistic concept, popularized by Mohammed. Hell, man, 20-some-odd % is cheap when your house is going up 30% a year!
Today I received in the mail a bogus newspaper advertisement from a domestic new car dealer in town. It is called the “(name of ego triping owner of dealership)
Gazette” and it is dated September 2006.
“0 down & no payments until 2007!”
“3 days only thursday friday saturday”
“September sales spectacular”
In the used car section of the “Gazette” they have this:
“ask about our guaranteed credit approval, 1-866-easy-credit, 24 hours a day 7 days a week”
This isn’t anything new. Best Buy has done these deals for years. They’re good deals as long as you pay them off in the required period. If you don’t, you’re an idiot.
It’s a lot more complicated than that. These aholes aren’t giving you anything for free if they can help it.
Nice to see the Brits are defaulting in record numbers after all the commentary they’ve written recently about our market. As mentioned before, they might out to stick to their own knitting before passing judgment on the rest of the world.
but…but…but prices where going up again… everything was working fine, it was a soft-landing!!
they are good war buddies, but they sure do whine a lot. and not just at us … look at how they talk about their french neighbors.
While in contrast you never hear people in the US putting down Mexicans …
The Guardian. “First-time buyers risk over-stretching their finances by borrowing 3.24 times their income to buy their homes, the highest amount ever, it was announced today.”
3.24 times - ha ha. I wish this was true for us!
Would 3.24x really be all that bad, assuming 30yr fixed with no other debt and plenty of reserves?
Let’s see on a $100k income at 3.4x.. $324,000 @ 6% = $1944/month (P&I), taxes $400/month, ins $100/month. Total PITI = $2444 or just shy of 30% of gross monthly. Figure, oh say, tax benefit of $550 month…net PITI $1,894.
Any comments?
Pen , I agree with you that the payment would not be to bad for that income ,especially if it was a fixed payment . The payment should be close to what the rental payment would be in theory .In prior real estate cycles I noticed that people were willing to pay about a 15% to 25% higher payment than rental payments for home ownership.
I just wonder how these people who make 50K a year thought they could afford a 400k loan .
It’s my understanding that until the late ’90s, UK mortgage lenders would generally lend no more than 2.5 x the principal wage-earner’s income (plus a smaller multiple of the partner’s income if a couple asked for both salaries to be taken into account), so borrowing multiples in excess of 3.0 x income is still seen as quite a novelty over there.
A significant contributing factor to the surge in prices in the UK over the last decade was a change in the lending institutions’ policy regarding mortgages to buy rental property. Previously, UK lenders would not approve mortgages for purchase of rental property unless the buyer had sufficient income or assets to carry the mortgage on the empty building. Sometime in the late ’90s, the rules were amended to allow the estimated rental income from the property to be factored into the determination of the borrower’s ability to afford the payments. This enabled a large number of people to buy additional SFRs as rentals, further reducing the amount of housing available to first-time buyers. Also, as most British cities lack the numerous apartment complexes common in US cities, rental accommodation is also in permanently short supply. As a result, renting is often no cheaper than buying even in the most expensive cities: The main hurdle facing first-time buyers over there is the inability to save enough for a downpayment, as the high rents eat up all their income.
one should consider that there is no HMD like in some (many?) US states. Also, in the bubble areas most of the loans are liar loans by definition. The BBC had an excellent series about this a year ago. Can you imagine a waitress or other entry-level job getting a mortgage on a stated $150.000 income?
If you spend nearly 100% of your real income on just the mortgage payments it’s very easy to get in trouble when appreciation stops or slows - on the other side, most of these people have probably nothing invested so they cannot loose either.
Good insight, but the 2.5x multiple was for joint income.
3.5-4x has been around for a long time on single income.
I agree that the buy-to-let boom was fueled by taking rental income into account. The difference to the US is that people are investing long term, and wouldn’t buy if the rental income doesn’t pay their finance costs. Of course, given that they have to generally put significant equity on the table, this means they get no coupon on their equity and are entirely reliant on capital growth for their returns. Nevertheless, this does make the market more sustainable.
I know we got the rational explanation from grim and others in the know already on this thread, but I kind of chuckle thinking that Poland might be the last frontier for Calif. equity locust money, now that Idaho, Wyoming and Utah are taken. What comes after that, Kazakhstan?
Slovakia and the Czech Republic are lookin’ pretty good to me.
Better go for Slovakia, then. Prague is already getting overpriced, and even places like Cesky Krumlov are being bid up like crazy. Amazing. (Then again, some of those towns are amazingly beautiful — if you like Old Europe.)
Friend of mine has a multifamily house (as many houses are in Europe) in eastern Poland. I wonder what’s happening there. He says huge profit, EU 1 mill value from 250k a few years back. But then again, that might be his wishful thinking because he’s waaaaaay east of the boom areas and not even in a village. I told him if he can get a million Euros for it, sell it today.
there are no US equity locusts in Easter Europe, they are crowded out by all the locusts from Old Europe. And yes, it has spread much further already to countries like Latvia, Rumania, Turkey and I would’t rule out some of the former Russian states like Georgia either - the EU (+ US) have an eye on them because of their strategic position. This bubble will probably keep expanding as long as the ECB exists.
The UK 3.24 times income figure for the UK is likely to be a bit misleading. Average UK income is about 20,000 Pounds ($35,000)
and the average price of a home is about 200,000 pounds ($350,000).
if we factor in 2 incomes, and recognize for a lot familes with Children the wife works part time. The Median income might be around 30,000 to 35,000 pounds. The leads to a 6.5 x income.
What has happened is the lower income people have been priced out of the market for many years, hence middle income people are often buying below median price houses.
The rest of the release from the CML (Council of Mortgage Lenders) stated that the average income of first time buyers was £34,216 and the average loan was £110,000.
In the UK the average person pays more than 55% of their wage in direct and indirect taxes.
I`m not sure what the figure fot the States is, but this might also explain comparitive afforability.
I had thought about the tax thing, too.
I agree. It’s a little bit hard to compare the UK and the US as there are so many other cost of living factors. 3.4x income in the UK could actually be comparable to 6.4x income in the US.
No idea if it’s right, but:
http://en.wikipedia.org/wiki/Taxation_in_the_United_States
has a comparison table.
Tax is very difficult to compare - Europe has VAT/TVA, US has sales tax varying by state, UK has “Council Tax”, US has (higher)local taxes.
yes, this is the general problem with making comparisons.
There are huge differences in tax systems (including HMD etc.) between countries, and also over the years within the same country changes can lead to huge distortions. In Europe I think most of the change over the last 10-15 years is crazy lending and special homeowner incentives. In the Netherlands around 1990 you could get maybe get a 3x income loan with at least 20% downpayment, now you can get 8-10x (stated) income with no downpayments (sometimes even 120% mortgage). On top of that, all kinds of tax incentives and subsidies for homeowners have made ‘investing’ in RE more attractive as well. Comparing rents to purchase price between countries does not work well either. E.g. in some countries like Netherlands most of the rental market is controlled by semi-government and heavily subsidized; also some countries have a huge shortage or waiting lists for rental properties.
Because of that it’s better to look at the historical trend for home prices; any pricechange that is significantly bigger than CPI or wage growth is suspicious as long as the circumstances (tax system etc.) do not change. An index like the US OFHEO index gives a good idea of what is happening. Unfortunately, we don’t have those kind of indexes in most of the EU although the data is there.
Most EU indexes throw everything together in one basket (often averaged over many different areas etc.) and the numbers are strongly influenced by the shift in type of properties that takes place because of the bubbly prices. E.G. in Netherlands the median price is up about 350% over the last 15 years (or even less if you believe the largest realtor organisation), but if you track the same homes, price gains are in the 800-1000% range (at least for my area, possibly a bit less for the big cities).
In the UK the average person pays more than 55% of their wage in direct and indirect taxes
Nonsense. Income tax in the UK is close to the average for the US, although other taxes like VAT and gasoline tax are admittedly higher (yes I’ve worked there).
Total taxation (all sources) in the UK is 36% of GDP. In the US it’s 25%. But note that the latter figure does not include the US’s huge budget deficit, which is taxes you haven’t paid yet.
http://www.oecd.org/dataoecd/18/23/35471773.pdf