UK House Value vs UK House Affordability – October 2012

This is the monthly UK House Affordability update which is the metric that I believe is the key driver of UK House Prices.  It is also the update for UK House Value which is the metric I am using to assess when it is time to buy a UK home. 

Let’s first update the key data being used to calculate both UK House Value and UK House Affordability:

• UK Nominal House Prices.  In recent posts we have been comparing the different UK House Price Indices however for now we will stay with using the Nationwide Historical House Price dataset for this topic.  September 2012 house prices were reported as £163,964.  Month on month that is a fall of £765 (0.5%).  Year on year sees a decrease of £2,292 (-1.4%).
• UK Real House Prices.  If we account for the devaluation of the £ through inflation (the Retail Prices Index) we see a very different story.  Month on month that £765 decrease turns into a decrease of £1,761 (-1.1%) and year on year that £2,292 decrease grows to £6,880 (-4.2%).  In real terms prices are now back to those around March 2003. 
• UK Nominal Earnings.  I choose to use the Office for National Statistics (ONS) Average Weekly Earnings KAB9 dataset which is the seasonally adjusted average weekly earnings of both the public and private sector including bonuses.  August 2012 sees earnings rise to £473.  Month on month that is an increase of £2.  Year on year the increase is £10 (2.2%).  With inflation (the Retail Prices Index) running at 2.9% over the same yearly period purchasing power of those that work continues to be eroded.
• UK Mortgage Rates.  The proxy I use to monitor mortgage interest rates is the Bank of England dataset IUMTLMV which is the monthly interest rate of UK resident banks and building societies sterling Standard Variable Rate (SVR) mortgage to households (not seasonally adjusted).  September 2012 sees this reach 4.28% which month on month is a tiny uptick of 0.01% and year on year is an increase of 0.18%.  So while the Bank of England holds the Bank Rate at 0.5% out in the real world we are seeing mortgages creeping up very slowly. 

The ASX 200 Cyclically Adjusted PE (aka ASX 200 PE10 or ASX200 CAPE) – October 2012 Update

This is the Retirement Investing Today monthly update for the Australian ASX 200 Cyclically Adjusted PE (ASX 200 CAPE).  The last update can be found here.

Before we run the analysis we need to discuss an anomaly with the dataset that has been built over many years.  The dataset is calculated using data published by the Reserve Bank of Australia.  I show a screen grab of this data below.  Reading this table I have always assumed that the columns “Dividend yield per cent per annum” and “Price/Earnings ratio” referred to the ASX200.  It turns out that this was a bad assumption and this month I have noticed some small print that highlights that these two columns actually refer to the MSCI Australia Index with all other columns being the ASX200.  This to me is just bizarre but if we want to continue with this dataset it looks like I am going to have to think outside the box as I’ve tried searching for new data that details the P/E and Dividend Yield of the ASX200 and not surprisingly drawn a blank.

 Click to enlarge

Does frugal living cause reclusive tendencies and limit career opportunities?

I started down the road to early retirement in 2007, with a step change in my attempts starting in 2009 when I also started this blog to hold myself accountable.  As detailed in the link above, one of the key methods I have chosen to help me reach early retirement is to move to a more frugal lifestyle.  This frugal lifestyle means I need less to live on per month which then has the knock on benefit of meaning that I can save more per month.  This then gives a further knock on benefit that I need a smaller Retirement Investing Today Low Charge Portfolio to retire on because I spend less per month.

My move to frugality did not happen overnight and was possible with two key direction changes.  The first was to get more value from the money I was currently earning.  Some of the techniques I have used (and continue to use) include:

• Achieve the lowest price grocery bill possible whilst satisfying my taste buds;-    Ensure I am on the lowest cost tariffs for electricity, gas, broadband and mobile phone;
• Wait until shoes and clothes wear out rather than become unfashionable;
• Stop everyday little treats that really made no impact on the lifestyle I want to lead;
• Cut back on alcohol which also means less regular nights out (this also had a very noticeable effect on both my health and the sharpness of my mind);
• Generally shunning consumerism; and
• Before buying something always ask myself will this make a difference to my life 3 months from today.  This means I own very few gadgets.

The FTSE 100 Cyclically Adjusted PE Ratio (FTSE 100 CAPE or PE10) – October 2012 Update

This is the Retirement Investing Today monthly update for the FTSE 100 Cyclically Adjusted PE (FTSE 100 CAPE).  Last month’s update can be found here.

As always before we look at the CAPE let us first look at other key FTSE 100 metrics:

• The FTSE 100 Price is currently 5,911 which is 2.6% above the 03 September 2012 Price of 5,758 and 16.5% above the 03 October 2011 Price of 5,076.
• The FTSE 100 Dividend Yield is currently 3.70% which is a slight fall from the 03 September 2012 yield of 3.75%.
• The FTSE 100 Price to Earnings (P/E) Ratio is currently 11.43.
• The Price and the P/E Ratio allows us to calculate the FTSE 100 As Reported Earnings (which are the last reported year’s earnings and are made up of the sum of the latest two half years earnings) as 517.  They are up 2.3% month on month and down 17.7% year on year.  The Earnings Yield is therefore 8.7%.

A Comparison of UK House Prices (Formerly The Greater Fool UK House Price Index) – October 2012 Update

This is the monthly update that compares the various UK House Price Indices.  The previous update can be found here.  Since the last post I have engaged in some good debate with Retirement Investing Today readers which has then encouraged me to undertake some further reading around this topic.  This has resulted in this regular topic seeing a number of direction changes which you will notice as you read on.  The first of these is that from here on in this regular post will not be referred to as the Greater Fool Index.  This title encouraged emotion and an inherent bias.  This blog is not about either of those things and so I must drive the title back to one that is emotionless and mechanical.  Not quite as exciting I know but hopefully of more use for making the right investing decisions moving forward.

It’s also important to note that this topic is also a work in progress and is not yet mature.  Therefore as you’ve already done previously please feel free to comment on the analysis so that we can further improve the data for all readers.

Let us first look at the five datasets that will be used for ongoing analysis:

• The Rightmove House Price Index.  This index simply tracks the average asking prices of properties as they come onto the market.  This means it will be affected by price changes, if the mix of house type changes and if the mix of location changes for houses coming onto the market.  It is not seasonally adjusted and covers properties from England and Wales.  Asking prices in September were £234,858 which month on month is a fall of 0.6% and year on year is an increase of 0.7%.
• The Acadametrics House Price Index.  This index is new for this blog and uses the Land Registry dataset.  It mix adjusts this dataset to take a constant proportion of property types, from a constant mix of geographic areas.  It is seasonally adjusted and covers properties from England and Wales.  It covers buyers using both cash and mortgages.  Buying prices in September were £225,374 which month on month is a small fall of 0.1% and year on year is an increase of 2.2%.
• The Halifax House Price Index.  This index is based on buying prices of houses where loan approvals are agreed by Halifax Bank of Scotland.  It uses hedonic regression to remove type and mix variations thereby measuring the price of a standardised house.  I use the non seasonally adjusted dataset and it covers the complete United Kingdom.  Sales prices in September were £160,437 which month on month is a rise of 0.2% and year on year is a fall of 1.2%. 
• The Nationwide House Price Index.  This index is very similar to that of the Halifax except it is based on buying prices of houses where loan approvals are agreed by Nationwide Building Society.  Sales prices in July were £163,964 which month on month is a fall of 0.5% and year on year is a fall of 1.4%. 
• The Land Registry House Price Index.  This index uses repeat sales regression on houses which have been sold more than once to calculate an increase or decrease.  This is then combined with a mean price which was taken in April 2000 to calculate the index.  It is seasonally adjusted and covers properties from England and Wales.  It covers buyers using both cash and mortgages.  Sales prices in August were £163,376 which month on month shows no movement and year on year is an increase of 0.7%. 

The S&P 500 Cyclically Adjusted PE (aka S&P 500 or Shiller PE10 or CAPE) – October 2012 Update

This is the Retirement Investing Today monthly update for the S&P500 Cyclically Adjusted PE (S&P 500 CAPE).  Last month’s update can be found here.

As usual before we look at the CAPE let us first look at other key S&P 500 metrics:

• The S&P 500 Price is currently 1,435 which is 0.6% below last month’s Price of 1,443 and 18.8% above this time last year’s Price of 1,207.
• The S&P 500 Dividend Yield is currently 1.97%.
• The S&P As Reported Earnings (using a combination of actual and estimated earnings) are currently $88.87 for an Earnings Yield of 6.2%.
• The S&P 500 P/E Ratio is currently 16.2 which is down from last month’s 16.3.

Guest Posting on Monevator

Today I’m guest posting the 2nd Private Investor Market Roundup on Monevator.  The workload that goes into that post means there won’t be a mid week post on Retirement Investing Today.  The Roundup covers Quarter 3 2012 and in my usual non-emotional fact based analysis is looking at:

• The stock markets of the top 10 countries by GDP including pricing (both nominal and real), P/E and Dividend Yield.  The countries are the US, China, Japan, Germany, France, Brazil, UK, Italy, Russia and Canada.
• The nominal and real HaliWide Index which is the average of both the Halifax and Nationwide House Prices Indices.
• The nominal and real performance of commodities including Gold, WTI Spot Crude, Soyabeans, Copper and Natural Gas.