House prices are too high. No they’re not. Yes they are. No. Yes. No. Yes

We seem to get an almost unending stream of articles in the press about house prices. Some ‘experts’ claim we’re in a house-price bubble and are heading for a crash. Others maintain housing is affordable pretty much everywhere apart from London and some parts of the South East.

So, who is right? The ‘bubble brigade’ or the ‘keep calm and don’t panic’ lot.

Actually, both are right in their own way because they use quite different measures of affordability.

The ‘bubble brigade’ usually use the ratio of house prices to earnings (click to see more clearly)

This shows that prices are at around 5 times earnings (the blue line on the graph and the left-hand scale) and so are about 25% above their long-term average of 4 times earnings (the dotted straight blue line). Conclusion – we’re in a house price bubble and prices will fall.

The ‘keep calm and don’t panic lot’ judge affordability by the amount people are having to pay for their mortgage (the red line and the right-hand scale of the graph). This measures the percentage of the average disposable income that a mortgage on a home costing the average amount would represent; for example, a mortgage taken out today on the “average house” would represent 28.4% of average disposable income – well below the long-term average (the dotted straight red line) of about 37% of average disposable income. Conclusion – housing is still affordable.

Of course, on this measure housing only seems affordable because the Government is holding down interest rates to avoid itself going bankrupt as our national debt rockets up from £700bn in 2010 to over £1.4trn by the time of the 2015 general election. But if interest rates were to rise, even slightly, borrowers – both the Government and those who have over-extended themselves to buy houses above their price level – could find themselves being crushed by the burden of rising interest payments.

Moreover with the maniacally deficit-denying, mouth-frothing, economically-illiterate, financially-incontinent Ed Balls heading for Number 11, there is a serious risk of a financial crash that will make the 2008 episode seem like a teddy bears’ picnic. Moreover, if Gordon-Brown-Clone Balls decides to whack up taxes on buy-to-let parasites or impose draconian rent controls, there might be such a flood of buy-to-let properties being sold that you may be able to BOGOF.

The only thing that can save us from the horrific prospect of McCluskey’s and Serwotka’s two glove puppets – the two Eds – grabbing power in May 2015 is for Dodgy Dave Cameron to lay down his pride for his country and do a deal with UKIP. But, of course, Dodgy is too arrogant and pompous to do that.

As for buying a home at the moment – I’d be more than cautious.