This is the key point. She’s analysing a subset called “average first time buyer working couple”, i.e. people who have cash or have been approved for mortgages and are in jobs that pay enough to meet income multiples, and who have already bought a property.
This statistic tells you nothing about people who are working but cannot afford current prices. Basically it is telling us that people who can afford to buy property can afford to buy property. It does not presume that the average buyer is earning an average salary. It tells you nothing about the affordability of property to the population as a whole, which is what matters.
It wouldn’t be too difficult for them to normalise the index itself, to allow for the fact that the typical household has 1.55 earners now compared to 1.3 in the 1980s… Although for understandability reasons, I can see why they give the couple rather than the average.
Back in the 80s 10 % plus inflation made that real interest rate a lot tamer than it looked and inflation was reducing your debts more rapidly than your capital repayments on your mortgage…and increasing the monetary value of your house.
I presume she included this in her analysis.
Today the real interest rate is the headline rate + the deflation rate so conversely the deflation rate is eating away at your capital value faster than the capital portion of your mortgage paid increases your equity. Again I presume she included this in her analysis.
It is not unlikely ECB rates go up in the next 12 months and back to normal over the next four to five years. It seems almost decided that the spread mortage providers charge the FTB also goes up over the next six months as our soversign credit rating declines further and the banks need bigger margins to sort out their perilous balance sheets. I presume she included then where FTB’s on variable rate mortgages stand vis a vis affordability over the medum term in her analysis.
Lastly the number of FTB’s fitting her description compared to the number of houses on the market (potentially on the market if there was one) is falling fast as emigration, unemployment, wage reductions etc kick in hard. If you aggregated the FTB group as a whole and looked at their affordability to the aggregate price of houses on sale the level of aggregate affordability at current prices might be a tad different. Again I presume she included this in her analysis.
Obviously if she didn’t then the investment opportunity she presents would need a closer look.
From the Indo link (thanks codify & Charlie Weston):
So two average wage earners.
A household income of above 75k.
One that in 2007 (the last year that figures are available for) would put them in the top 5% of taxpaying units (assuming they are married).
Eh, these are rich people.
Average houses should be cheap for rich people.
Try two median wage earners.
A household income of 54k
How affordable does it look now?
(That’s still in the top 20% of household units…)
Wanna get down to what most households have as income?
(That’s not including the 463k households with less than 10k in taxable income)
How do the figures look now?
Average price affordable?
Course not, those are median incomes.
What can you afford on 25k then?
Well, according to Bank of Ireland, you can borrow 125k
Now, what will that buy…
I’ve never read such an unmitigated pile of shite. It was written by an engineer, a property developer and a spin doctor. It does more damage to the cause of affordability than benefit. It displays a complete lack of market, finance and economic savvy among the three stooges that wrote it and is embarrassingly transparent in it’s obfuscation.
There’s no upside bias limit for wages, there is a downside. If Warren Buffet walks into a room full of people, everyone there is suddenly averagely rich. If Mahatama Gandhi walks in, everyone is only very slightly poorer.
I know how averages work but do you really think you’ll get many Warren Buffets working as Foremen, Skilled Operatives, Unskilled Operatives or Clerical Staff?? I’m sure if you looked at the distribution of earnings for these workers, that thanks to unions, there’s actually a very small standard deviation.,These groups would tend to be the lower paid i.e. non-professionals, and all of them earn, on average, a lot more than the 20k-25k you suggest.
Was there not some stat out around the last budget about how 5% of the population earn over 100k? If so, how would a couple earning 75k manage to get into the top 5% also?
The survey covers both genders (unless you are saying there are no females working in any of these areas) but the only place that split the averages was the Clerical.
And as for bias, my experience of these surveys (and I’ve been involved on both sides in quite a few) is that the figures tend to understate actual earnings. A lot of employers like to use stats like this to show their staff that their rates compare favourably to the market. Sending in artificially low figures will help to keep the average down and make your staff look relatively better paid. This does happen.
Fair enough, I should have left that one off as I’d imagine the group isn’t very homogeneous
I don’t think so but not 100% sure
Don’t disagree there
Is it reasonable to assume that, even though this is out of date, earnings in Dublin would still be higher by a similar degree or has the gap widened? Outside PS workers I know I haven’t heard of many in Dublin taking pay cuts but they seem to be rampant in other areas (caveat: this is based on a very small sample size…)
Thought I read something recently on CSO site (can’t find it now but will look again) that said hourly rates were up slightly over last quarter but hours were down which resulted in a net reduction in earnings.
Yeah, I think so. I have similar experience from a similar small sample.
Yeah, I think the median hours figure, if we had one, would shock in the decline. Particularly in, for example, construction. A proportion of the figure you gave earlier would be overtime? (given the weekly hours, it must be?).
Yip, I was assuming some level of overtime. I suspect though that while hours may have dropped now, as things pick up employers will be very wary about taking on new staff and will much prefer to increase overtime (if there is a double dip it’s a lot easier cut hours again than lay recently hired people off).
I suspect therefore that you’ll see earnings for hourly paid people increase while those without work watch on until employers reach a point where they recruit rather than increase overtime. I’d imagine in some areas now, you’re working longer hours or you’re not working at all.