House Prices

Friday 18th February, 2005
In the UK, although I'm sure this applies worldwide, house prices are soaring. Even a starter home now is getting ridiculously priced and property pricing has gone up many times faster than general inflation.

- Some people blame interest rates, low interest rates allow people to borrow more and pay more for houses. This increases prices.

- Some people blame employment - as people get more and better jobs they can spend more on house. House prices increase.

- Some people blame the government - after all, they're to blame for everything...apparently.

Personally (and don't shoot me for this straight away, hear me out) I blame women! Not just any women, but modern women. Please note this is all observation and not criticism.

Back in the days when our parents were starting off down the road to families and marriage there was one breadwinner in the household, the husband or father. Women traditionally stayed at home and were housewives, looking after the house and kids.

With one income in the household, high interest rates and 2.4 children disposable income was very low and people just couldn't afford expensive housing. Vast developments of ordinary priced detached and semi-detached housing were built to satisfy this demand.

Then society changed -  women went back to work, left their kids with childminders and started getting paid a fairer wage for their jobs. Suddenly the traditional households had two incomes almost double the spending power. Suddenly, just by going back to work, women (who, let's face it, love the property pages more than guys) could have that home of their dreams and a maid to clean it.

It's now pretty much the norm for a family to have both parents working and, unsurprisingly, house prices have been pushed up as a result. High income single professionals have been pushed down into the lower priced housing, treading on the toes of first time buyers and leaving those at the bottom of the market with nothing to buy.

To put this into perspective, I started my first job on an IT Helpdesk around 8years ago earning £14k. My disposable income wasn't great but, after a year in this job and still only earning around £15k I managed to purchase my first home at the age of 21. £58,000 it cost for a one-bedroom maisonette, with a small front garden and a garage. Not cheap, but the mortgage I needed to purchase it was affordable with an outlay of around £400/month.

Now, 8years down the line, that property is now worth around £140,000, to a first time buyer a mortgage of over £1,000 a month and a likely £7,000 deposit required. And what does a Helpdesk analyst in my areas earn now...£16.5k. What the hell are these guys supposed to do? Graduates and school leavers are getting that first job, earning what was a decent wage and they're not even going to smell a house for years to come, dependant on their parents home. The mortgage on a first-time buyer's property is more than their entire monthly take home.

Now, I'm not against society change and equal rights for women etc. but I just don't see a solution here whichever angle of politics I look at. Women who want a family are having to return to work whether they want to or not just to afford a family home. Those who don't have any skills or who don't want to leave their children with someone else are making a living as child-minders. The government is now handing out benefits for child-minding to those who choose to go back to work.

Is it just me, or is the future a bit bleak?

  1. 1) Jerry Carter Said: (21/02/2005 16:10:10 GMT) Gravatar Image
    House Prices

    That was eerily like reading my own biography. Right down to how much I paid for my first condo (maisonette) - $58000 insetead of 58k pounds.

    I blame the realestate system, and my uncle whome I love is a realtor to boot. The system is based on what we call a free market comoodity - property. There is no standard evaluation or enforcable pricind model save "what the market will bear". Well, that's find if the market is up and down.... only trouble is there's not a realtor on the planet who is going to sell a property at a loss to their customer, the owner. Which means property is EXPECTED to appreciate in value even if the market can no longer bear it.

    This is a huge problem, especially for the current emerging generation of twenty somethings. You and I have been through the same narrow gate, Ben, right down to the job at the help desk (9 years back for me). I wouldn't be able to pull a repeat with today's wages and prices.

    What's interesting is we're shifting back to that "land owner" and "not land owner" society where most folks pay rent rather than buy due to the prices. Them that have property have no compulsion to sell their properties cheap or at cost, so as time goes on with the current syste, more and more people will find property ownership out of reach.

    Another factor is cost of materials, on the riseworld wide since China began putting all those billions of dollars we send their way (widget payments to wal*mart) to use building up its infrastructure. Base materials costs rise, base labor costs rise, base house prices rise... and if there is *some* poor idiot willing to take out a 50 year mortgage and never have any hope of paying it off, you bet the banks will start offering it because "the market will bear it".

  2. 2) Colman Carpenter Said: (22/02/2005 16:56:45 GMT) Gravatar Image
    House Prices

    Ireland have (or at least have flirted with the idea of) mortgages that can be passed on to your kids. So the concept of 50 year mortgages is here already. Can;t say I agree with it at all, as it can only send prices up even higher !

  3. 3) Ben Rose Said: (22/02/2005 17:02:14 GMT) Gravatar Image
    House Prices

    Come on Colman....

    No kids...no 50yr mortgage.

    No modern woman...no kids.

    No house...no modern woman.

    No mortgage...no house.

    No kids...no 50yr mortgage

    ad infinitum ;O)

  4. 4) Colman Carpenter Said: (22/02/2005 17:08:17 GMT) Gravatar Image
    House Prices

    For the record, what's to stop someone with a house now transferring to a generational mortgage just to increase the debt burden our poor kids will inherit during their life (student loan debate, anyone ?). Seems as though we're working towards a society where you'll have to over-achieve just to break-even in life !

  5. 5) Ben Rose Said: (22/02/2005 17:13:51 GMT) Gravatar Image
    House Prices

    I agree with university tuition fees.

    If "modern woman" didn't insist on being educated to degree level then there'd be plenty of money in the education system. If fees persuade them not to go, it can only be good ;O)

    Seriously though, people just go to university these days because it's easy to get into and they've got nothing better to do. Most of the degrees aren't vocational and lead to nothing...except the student loans debts that Colman mentioned.

  6. 6) Lars Olufsen Said: (23/02/2005 14:20:16 GMT) Gravatar Image
    House Prices

    Don't worry guys ... PANIC!

    It will only get worse.

    In Denmark, the pattern is very similar to the one you describe, Ben. Only perhaps even worse.

    Some 10 years ago, I was out looking for a flat. Nothing wild, just a 2-room thing in the shady part of Copenhagen. It sold at DKr 375,000 (appx ■35,000). I found that a bit steep, as I was making appx ■15,000 a year, so I searched for other ways of living, and ended up renting a small 1-room flat instead.

    Back in september of 2004 I was looking for a new home, and came across an ad for an apartment in the same building as the one I was looking at 10 years back. Same size, same layout, slightly improved condition (kitchen had been rebuild 5 years ago).

    The price?

    DKr 1,675,000 (appx ■150,000). Ouch!

    My guess is that the pay-check I'd have, had I been in the same position as 10 years ago, wouldn't have changed much. Maybe ■17,000/y.

    It's disgusting.

    The market is highly inflated due to many reasons.

    First of all, the average couple - as you mention - have more money to spend.

    Interest rates are low, and banks have come up with very creative mortgages. 30 year loans with no payment for the first 10 years - just to mention one example - luring people into thinking that they can actually afford a bigger home than they actually can, since all they see is that for 10 years, they will only have to pay the interest.

    And there's more ...

    The infamous 'elderly' - the generation of our parents - who were the ones who moved from the city center to the suburbs back in the 70s, are still sitting in the suburbs with completed mortgages, and not moving into the retirement homes and similar places, as THEIR parents did as they got older.

    So there is a deficit of homes on the market due to that.

    And it get's worse ...

    There are more singles out there than ever before. We have become content with being ourselves, and are less prone to accept compromise to become a 'family'.

    Once again, this leads to increased need for housing.

    Bad? Yeah - but it gets worse ...

    The 'elderly' have a massive investment lodged in their homes. It is their retirement fund. One day they will sell, and probably move to a fancy apartment downtown instead ... just because the money is there. The value of the home they paid ■20,000 for back in 1973 is now ■300,000.

    But here's the catch (in Denmark anyway).

    There's a huge difference is the size of the generations. 1967 - my birthyear - was the last of the 'big years' where a lot of kids were born. Since then, numbers have been dropping.

    What does that mean? Well ... As the older generations begin to sell, the number of new buyers will be fewer and fewer by the year.

    The suburbs will be flooded with houses for sale and nobody to buy them.

    Prices will drop like an e-business baloon bursting.

    Interest rates will soar, trying to contain the loss of value.

    It's going to get ugly.

    'Young' families who have just established a home at a high price, based on low rates and creative loans, will face interest rates so high that it will be impossible to pay their mortgage.

    It doesn't take that much of an increase to create chaos.

    In Denmark at the moment, interest rates are at appx 2.5%. And since people in large numbers are only paying the interest due to creative loans, even a 0.5% interest increase will mean a 20% increase of monthly payment. Ouch!

    Is it really a clever time to buy a new home?

    We'll see. In October, I bought a ■250,000 flat in Copenhagen. Low interest rates and creative loans and all.

    Yeah ... I think I'm F'ed! Just a matter of time.

    Sorry for ranting :o)

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