More on the Cause of UK House Price Corrections: Lack of Affordability

I read an excellent article on the Zungalow blog yesterday, which expanded upon my article of earlier in the week about the relationship between UK housing affordability and house price corrections. In said article I compared the index of average mortgage payments vs average first time buyers salaries during the last price crash, to try and estimate how much farther prices may fall this time. But my comparison unfortunately had to based guesstimate of the current affordability index, because Nationwide hadn't published up to date figures at the time of writing.

The Zungalow author had found a similar way of comparing affordability and house prices during the last UK house price correction, that did not rely on a guesstimate to project onto the current correction. He compared Nationwide's quarterly index of UK house prices since 1952, against the house price to earnings ratio (HPER) index.

As the article said, those two indexes, like the ones I used show a clear and unmistakeable pattern between house affordability to first time buyers, and house price corrections. The difference was he was able to give figures for his affordability index in Q1 2009, however as the writer pointed out the HPER index is not as accurate a measure on affordability, because it doesn't factor in interest rates or the health of the mortgage market vis-a-vis what deals are on offer for first time buyers. Therefore the one that compares average mortgage repayments to first time buyer salaries is the best measure of home affordability to first time buyers.

That said, all there is for us to do now is wait for Nationwide to publish its Q1 2009 results in our definitive affordability index. I'll be keeping an eye out for this to be published, and writing an article on how it affects my predictions for the future of UK house prices.