How house prices have changed around the world

Pitachok, you raise many points, most of which I'm afraid I would have to disagree with! I will go through a few. I can agree on the question of income, although the average salary stats in the UK, like many other "official" figures are probably very debatable. The vast majority of people probably earn a lot less then these average salary figures suggest and we are now heading into a period of austerity (was the last average salary calculation around £28 grand a year? It seems to go up about £2 grand every year even though pay increase have supposedly been dampened by recession!). Nevertheless, it is possible to keep a housing market going by sales to high/higher earners, in fact, this is what is happening now. Sales however, are well down on the 2007 peak levels. Mortgage approvals are also about half 2007 levels. You say that the relaxing of credit was a sensible reappraisal of risk based on a previously more restricted market. I would argue that the sensible bit probably lasted about a year or two. By 2007, 47% of all mortgages were fast track or self-cert. This growth went hand in hand with rising prices and I put it to you that when the most popular mortgages are those that do not check a persons income, fraud will inevitably follow. The BBC first exposed this back in 2002/3 and the programme can still be found on line to view. Halifax and Birmingham Midshires (owned by HBOS) were two banks caught out in encouraging people to lie about their income. Of course, recent whistleblowers at the bank told us what some of us have known for some time, but they were paid off at the time to keep quite. 2003 - Mortgage customers urged to lie. http://news.bbc.co.uk/1/hi/business/3222053.stm 2004 - Self cert mortgages could skew market http://news.bbc.co.uk/1/hi/business/3478635.stm Of course, the price of a house is dependant on what someone will pay for it and what someone is willing sell it for, but there is also a third equation. For most people, especially first time buyers or BTL investors who invariably hold the floor of the market up, everything is dependant on the supply of mortgage credit and the willingness of the banks to fund them and therefore by defintion maintain prices. As we see now, the banks will no longer offer the same risky mortgage products and because prices have reached such a high level, most borrowers now need 20-40% deposits. Prior to 2007 who needed a deposit? I think it's fair to say that risk has been reassessed. On the question of house prices being 30-40% overvalued, I base this on banks traditional lending criteria in a properly regulated market. One where fraud is not encouraged. Personally, I don't care if a bank lends at 100 times salary as long as they know that if it goes wrong, we the taxpayer do not prop them up and they be allowed to go to the wall. Of course, home owners who have been use to the 10-20% yearly increase in price in a supposedly 1-2% inflation economy, are reluctant to sell for less now. As I said, we are where we are - a damn mess! A market of lower sales. I do not believe for one minute that if sellers returned to the market enmasse because of supposedly increasing prices, that we would see sales go up very much. The bottom line is that the funding of the market has been fractured by the removal of fast track and self cert which kept much of the lower end of the market going between 2000 and 2007. I don't see that changing much at all.

SevenPillars - your (and many other people's) assumption that property values are not supported by incomes is, I believe, incorrect. Having done the maths (and written about it in detail on this site) property actually seems reasonably priced based on the incomes of the higher earners required to buy all the property in the UK. The 'average' UK income isn't the average income of a UK house buyer. The flood of 'easy money' you talk about was, I believe, not necessarily due to lax credit checking but in many cases a sensible reappraisal of risk - for example, before 1997 it was very difficult indeed to borrow to let. Then the rules changed, people could borrow money to buy property to invest and a scarce resource just got scarcer. That didn't mean they couldn't afford them, just that the law was too tight beforehand. It shows no sign of being changed back. You talk about the low volume of sales as a reason for 'artificially high' prices. The price of a house is both what someone is willing to pay [i]and[/i] what someone is willing to sell for. This second part of the equation is important but usually overlooked. When people talk of prices needing to fall 40%, I'd like them to show me who these people who are willing to give their homes away for that price (because I'd like to buy them). While its true home movers wouldn't lose out from lower prices (as they'd be buying a cheaper house as well as selling one) but there always needs to be someone at the top of the chain who is willing to take a hit. With low interest rates there's no pressure on anyone to do that. That doesn't mean house prices are going to go up exponentially (indeed they're probably not). But even if they only go up with inflation they'll be a better bet than the stock market for the simple reason that you can borrow against them, and so start your investment with a higher value asset. 2% inflation on £200k is more than on the £50k deposit, while a tenant is paying the interest on your loan. Returns like that when we have such appalling pensions will only make property more popular.

Supasap. House prices rose because a flood of easy money was thrown at the market. It really is as simple as that. When banks and money lenders are not interested in checking whether people can afford to repay and they will give a mortgage to anyone with a pulse, rising prices are guaranteed because people can lie, and did, about what they can afford. The industry promoted this for most of the noughties (or with house prices should that be the naughties?). there is no secret as to why we are where we are, it's just that the VI's are very good at conning people into believing that it is about shortages and a good investment. The bottom line is this, if mortgages had been better regulated, either by the banks themselves or state regulators like the FSA, house prices would probably be about 30-40% lower than they are today, because to put in bluntly, earnings in the UK do not support current house price levels accept in a distorted, artificial, low sales market, which is what we now have.