Housing market is fairly priced

By one measure, house prices are looking quite reasonable.

House prices are currently valued at about 3.4 times our earnings. The long-term house-price to earnings ratio is about 3.1 times our incomes, so prices, by this measure at least, seem pretty fair today.

This may be very surprising to you, not least because some lenders have, until recently, been lending more than eight times joint-customers' salaries, albeit to a minority of customers, but because by other reports we've been paying around twice as much.

Indeed, calculating it the way most people do today, properties currently cost us 5.8 times our gross salaries. How have I managed to fiddle the figure downwards, and what's my hidden agenda for this outrageous move?

More two income households

Firstly, I assure you it's not because I'm an owner who wants to boost the property market and therefore my house price! I live abroad, I have no property interests in the UK and I have no intention of buying property in or moving back to the UK. Ever. You could say I'm one of the most impartial commentators on the UK property market.

There are two reasons why the figures are so different. Firstly, many people calculate this ratio based on the average man's salary only. This may have worked in the 1950s, when our data for historical comparisons begins, but it clearly doesn't today. I based my calculation on a whole man's income and half a woman's income. Any household with two full incomes will find it even easier to buy.

You may think it's unfair to exclude single homeowners, but the reality is that the majority of single 20- and 30-somethings are never going to be able to buy a pad for themselves alone. Unless you're well off, you can expect to buy with someone else. That's just like the old days, only due to society advancing you'll now probably need two incomes to do it, which is why it makes sense to include two incomes, or 1.5 incomes, in the calculation.

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Comparing apples with iPods

The second reason is down to the Office for National Statistics (ONS). Commentators have continued to use ONS data, but in the past four years the ONS has changed the way it calculates earnings. This radically reduces and underestimates our average salaries.

For those of you who remember their pre-GCSE/pre-O Level maths, the ONS now calculates our salaries on a median average instead of a mean average. This reduces the average by putting too much emphasis on those with very small salaries, who wouldn't dream of buying a house anyway.

The bottom line is that this makes our salaries seem 20% lower than they are and makes historical comparisons useless. It seems that the massive effect of this change has been missed by many commentators, so I've based my calculations on the old method.

This is far from perfect

There are problems with every measure of house prices, and this one is still completely full of them; for example, although my measure is better for historical comparisons, my ratio is distorted downwards by very high salaries from a small percentage of people.

Whatever measure you use to compare house prices against incomes, this doesn't take into account interest rates and monthly mortgage bills, our increasing wealth over time, our increasing unsecured debt, tightening or loosening lending practices and the possible effect of increased buy-to-let activity. What's more, other measures are likely to violently diverge from this one.

If you're interested in reducing the impact of interest rates on your mortgage for a decade, read Now is the time to get a fixed mortgage.

Even if the measure's correct, its use is limited

Buyers and sellers can behave irrationally for a long time, so whatever your view on house prices, don't assume that the market will correct upwards or downwards any time soon, because anything can happen in between. As I've demonstrated many a time, such as in The economy in 2011: what the forecasters say, guessing these movements consistently and reliably has proved beyond us so far.

Finally, I explained recently why I think buying a house now is likely to reward you satisfactorily, and it's not because I foresee no crash, or because I expect prices to rise in the next few years, or because I think that prices are cheap. I make no assertions or forecasts such as those whatsoever, and I don't need to: read about it in Now is the time to buy property.

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