Monday, September 17, 2007
House prices and earnings
Posted by David Smith at 09:30 AM
Category: Thoughts and responses

A lot of people seem to think the house price-earnings ratio is 11 times salary, as Business Week claimed, rather than a still-high 6.5 - 7 times. Here, as reminder, is the calculation.

Here's a link to the median earnings figures. As you'll see, the median in 2006 was 447 a week, 23,244 a year. The median house price in England & Wales in 2006 was 166,000, according to Land Registry data. That gives a house price-earnings ratio of 7.1. To add a further complication house prices have been conventionally measured in relation to male earnings, 487 a week, 25,324 a year, which brings us down to 6.5.

If you're still with me, you'll have noticed that most house price measures are for the average, or mean. Let's take that at 200,000 - it's lower on some measures than others. So what are mean earnings? This release tells us (see p9) that they are 537.30 overall, 27,940, or 591.60, 30,763 for men only. That gives price-earnings ratios of 7.2 and 6.5 respectively; not much different.