Are House Prices Good Value?

In a recent post, we suggested that after two years of falling prices, the market has turned and now prices are starting to rise. – house price rise

This rise in house prices may prove short lived, and looking at this graph we can see why. Although house prices have fallen 25% from their 2007 peak, they are still relatively expensive. This graph shows the ratio of house prices to earnings for first time buyers. At a ratio of 4.0, this is considerably higher than the post 91 slump when the ratio fell to a little over 2.0.

Low interest rates are helping to make it attractive to buy a house because mortgage interest payments are relatively low. Also, prices are being kept high, by a relative shortage of properties on the market. – This is in contrast to countries like Spain, Ireland and US – where a glut of unsold properties are pushing prices down further.

House price to earnings Ratio over past two decades

Of course, the house price to earnings ratio doesn’t have to fall to historical averages. A continued shortage of supply and low interest rates could mean house prices rise, despite the fact they are still unaffordable for many.

All of this will come as no comfort to those hoping to be able to buy a house at an affordable price.