Is it possible to "miss the boat" or be "priced out forever"?
Posted by admin Mon, 24 Dec 2007 15:01:00 GMT
Over the past few years there appears to have been a lot of concern amongst young people that if they do not get a foothold on the "housing ladder" sooner rather than later, that they will somehow be priced out of owning a home forever, or "miss the boat" - the boat in question being affordable owner-occupied housing. But is this a genuine risk, or are they worrying unduly?
Over the past century the housing market has both risen and fallen, in both nominal terms and real terms. When the level of initial monthly payments for a mortgage on the average first-time-buyer type house is measured against wages, the peaks and troughs in the housing market are clear to see. There have been times when housing has been more affordable, or more expensive, than other times, but in the past affordability has always corrected itself to move back to reasonable levels before too long.
The main reason for this is that the housing market is fundamentally supported by new buyers entering the market. These provide the cash to support each level of the housing market, from small flats up to large family houses. If this support is removed, or weakens, then demand at all levels of the housing market is affected and prices correct downwards. Alternatively if wages are rising faster than house prices, this also has a corrective effect on affordability.
In recent times the number of first-time-buyers entering the market has fallen to record lows. In 2007, just 300,000 first-time-buyers entered the market, the lowest since 1980, according to the Halifax. Halifax also found that houses are unaffordable to first-time-buyers in 96% of towns. This has only been made possible by the recent phenomena of "buy-to-let". This is essentially a new source of demand that has been made possible by the availability of credit in the form of buy-to-let mortgages, which were not available until the mid 1990s. In the past 10 years the number of buy-to-let mortgages outstanding has risen from a base of virtually zero up to nearly 1 million today.
