From: clemenr@wmin.ac.uk
Newsgroups: uk.politics.misc uk.finance
Subject: Re: Talk of Britain's housing market being headed for stability and "past the worst" may yet prove dangerously complacent.
Date: 29 Jan 2006 09:24:34 -0800
   posting-account=Mzt37gwAAACjYRm6XIoKF1hrhw8NW9aW


Tim wrote:
> "Crowley" wrote
> > A thoughtful article..............
> > ...
> > Five years ago the typical deposit was =A34,992, equivalent
> > to 23% of average earnings. Today the typical deposit is
> > =A315,762, equivalent to about 57% of average earnings.
>
> Why has the "typical deposit" grown faster than house prices?
>
> If the "typical deposit" was always, say, 10% of
> purchase price then it would have grown at the same
> rate as house prices have over the past 5 years.

If house prices rise faster than wage inflation, then we'd expect the
size of the deposit to grow as a percentage of the purchase price. If a
house is worth 110,000 and a person has a salary of 25,000, then 3x
their salary is 75,000, requiring a 35,000 deposit. If the same house
is now worth 180,000, and their salary has grown to 30,000, then 3x
their salary is 90,000, requiring a 90,000 deposit. So house prices
have increased by 64%, but since wages have only increased by 20%, the
required deposit has risen by 257%.

Cheers,

Ross-c