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interestrateripoff

Exponential House Price Growth 10% Yoy

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Exponential house price growth.

For those who think big falls aren't possible here are some figures if your house is worth £100,000 what would happen if prices kept going up by 10% YoY.

100000
110000
121000
133100
146410
161051
177156.1
194871.71
214358.881
235794.7691
259374.246
285311.6706
313842.8377
345227.1214
379749.8336
417724.8169
459497.2986
505447.0285
555991.7313
611590.9045
672749.9949
740024.9944
814027.4939
895430.2433
984973.2676
1083470.594
1191817.654
1310999.419
1442099.361
1586309.297
1744940.227
1919434.25
2111377.675
2322515.442
2554766.986
2810243.685
3091268.053
3400394.859
3740434.344
4114477.779
4525925.557
4978518.112
5476369.924
6024006.916
6626407.608
7289048.369
8017953.205
8819748.526
9701723.378
10,671,895.72

First 50 Years.

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The 2nd 50 years:

11739085.29
12912993.82
14204293.2
15624722.52
17187194.77
18905914.25
20796505.67
22876156.24
25163771.86
27680149.05
30448163.95
33492980.35
36842278.38
40526506.22
44579156.85
49037072.53
53940779.78
59334857.76
65268343.54
71795177.89
78974695.68
86872165.25
95559381.77
105115320
115626851.9
127189537.1
139908490.9
153899339.9
169289273.9
186218201.3
204840021.5
225324023.6
247856426
272642068.6
299906275.4
329896903
362886593.3
399175252.6
439092777.8
483002055.6
531302261.2
584432487.3
642875736
707163309.6
777879640.6
855667604.7
941234365.1
1035357802
1138893582
1252782940
£1,378,061,234

So after 100 years you end up with a house worth £1,378,061,234

Or £1.38bn, although because everyone is bored with billions at the moment a reasonable priced house.

So no problems here then is there?

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My dear old Mum and Dad paid 2,500 for their first house in 1968.

The same house was on the market last year for 110,000.

Can you work out the annual rate of [s]monetary inflation[/s], err I mean appreciation in value. Edited by dazednconfused

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[quote name='interestrateripoff' post='1715255' date='Mar 5 2009, 08:42 AM']Exponential house price growth.

For those who think big falls aren't possible here are some figures if your house is worth £100,000 what would happen if prices kept going up by 10% YoY.

100000

10,671,895.72

First 50 Years.[/quote]

Out of interest - in what way would you expect that to convince anyone that believes 'big falls' aren't possible, that they are?

I do believe they are possible*, by the way, although if I recall not nearly to they extent you do, but I'm a little confused by your hypothesis here.

* For clarity I'm assuming we are both using 'possible' as a substitute for 'plausible' rather than in the true quantum sense of the word 'possible'. Edited by daniel stallion

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Now apply this same exponential function to the money supply and the collective amount of debt in the economy, and remember under our present system it [b]has[/b] to grow in this fashion or it fails. Edited by sillybear2

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[quote name='daniel stallion' post='1715269' date='Mar 5 2009, 07:51 AM']Out of interest - in what way would you expect that to convince anyone that believes 'big falls' aren't possible, that they are?

I do believe they are possible*, by the way, although if I recall not nearly to they extent you do, but I'm a little confused by your hypothesis here.

* For clarity I'm assuming we are both using 'possible' as a substitute for 'plausible' rather than in the true quantum sense of the word 'possible'.[/quote]

I just thought I'd post how damaging and unrealistic continued HPI of 10% is. Completely unsustainable over the long term, yet many I suspect where over extending to borrow money because house prices can only ever go up and they'll keep going up at the same rate.

Economically impossible.

And yes apply the same logic to the money supply and you really do have a huge problem.

You can also apply the same logic to those "funds" that offer a guaranteed rate of return of 10%, this is what some investors are looking for.

The system is completely illogical it makes no economic sense, but everyone wants growth and everyone wants big returns. We can no longer breathe we can only ever inflate because to deflate ends the illusionary game.

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[quote name='dazednconfused' post='1715261' date='Mar 5 2009, 07:45 AM']My dear old Mum and Dad paid 2,500 for their first house in 1968.

The same house was on the market last year for 110,000.

Can you work out the annual rate of [s]monetary inflation[/s], err I mean appreciation in value.[/quote]

Yes, use logs.


2,500 x (1 + r/100) ^ (2008 - 1968) = 110,000


Simplifies to

2,500 x (1 + r/100) ^ (40) = 110,000

and then again to

(1 +r/100) ^ (40) = 44



Now take logs of both sides

40 log (1 + r/100) = log 44

then simplfy


Log (1+ r/100) = ( log 44 )/ 40

Log (1+ r/100) = 0.04108631


now reverse the logs

(1 + r/100) = 10 ^ 0.04108631

then solve for r


r = 100 ((10 ^ 0.04108631) - 1)


So r = 9.9%

Just to test

2,500 x (1.099)^ 40 = £109, 105 so just about there without using more decimal places

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[quote name='dazednconfused' post='1715261' date='Mar 5 2009, 07:45 AM']My dear old Mum and Dad paid 2,500 for their first house in 1968.

The same house was on the market last year for 110,000.

Can you work out the annual rate of [s]monetary inflation[/s], err I mean appreciation in value.[/quote]
Approx 9.9224% YOY

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[quote name='interestrateripoff' post='1715280' date='Mar 5 2009, 09:00 AM']I just thought I'd post how damaging and unrealistic continued HPI of 10% is. Completely unsustainable over the long term, yet many I suspect where over extending to borrow money because house prices can only ever go up and they'll keep going up at the same rate.

Economically impossible.

And yes apply the same logic to the money supply and you really do have a huge problem.

You can also apply the same logic to those "funds" that offer a guaranteed rate of return of 10%, this is what some investors are looking for.

The system is completely illogical it makes no economic sense, but everyone wants growth and everyone wants big returns. We can no longer breathe we can only ever inflate because to deflate ends the illusionary game.[/quote]

So more of a '[i]our system is based upon Alice in Wonderland politics, magically delicious economic reasoning and is masterminded by a Wizard of OZ-esque, seemingly all knowing, but ultimately pathetic, entirely disappointing, soul destroying, weak willed, maniac - anything is possible once the strong smell of coffee pervades amongst the masses[/i]’, rather than a mathematical hypothesis of proof.

Now it makes sense! Edited by daniel stallion

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[quote name='daniel stallion' post='1715295' date='Mar 5 2009, 08:11 AM']So more of a '[i]our system is based upon Alice in Wonderland politics, magically delicious economic reasoning and is masterminded by a Wizard of OZ-esque, seemingly all knowing but ultimately pathetic, weak willed, maniac - [b]anything is possible once the strong smell of coffee pervades amongst the masses[/b][/i]’, rather than a mathematical hypothesis of proof.

Now it makes sense![/quote]

yep,

sentiment (power & greed) drives financial markets....nothing else......it's not scientific in the slightest, they just want YOU to believe that it is.

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Or just:

(110,000/2500)^(1/40) - 1

Any bull using this info should bear in mind the rampant general inflation of the 70's which kept HPI in line with non-HPI.

Over the last ten years the opposite happened and that's why house prices still have a long way to fall. Edited by Dave Spart

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[quote name='mikelivingstone' post='1715287' date='Mar 5 2009, 08:08 AM']Yes, use logs.


2,500 x (1 + r/100) ^ (2008 - 1968) = 110,000


Simplifies to

2,500 x (1 + r/100) ^ (40) = 110,000

and then again to

(1 +r/100) ^ (40) = 44



Now take logs of both sides

40 log (1 + r/100) = log 44

then simplfy


Log (1+ r/100) = ( log 44 )/ 40

Log (1+ r/100) = 0.04108631


now reverse the logs

(1 + r/100) = 10 ^ 0.04108631

then solve for r


r = 100 ((10 ^ 0.04108631) - 1)


So r = 9.9%[/quote]

My how you complicate things!

All I did was type in the Windows calculator: 110000 / 2500 = x^y 0.025 =

and Bob's your uncle. (0.025 being approx. 1/39 where 39 is the no. of years of the appreciation.)

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[url="http://www.youtube.com/watch?v=F-QA2rkpBSY"]http://www.youtube.com/watch?v=F-QA2rkpBSY[/url]

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[quote name='interestrateripoff' post='1715280' date='Mar 5 2009, 08:00 AM']I just thought I'd post how damaging and unrealistic continued HPI of 10% is.[/quote]

In what is supposed to be a low inflation environment, excessive HPI polarises society into the haves and have nots and if allowed to continue unchecked leads to financial catastrophe.

Whenever the price of any substitute-free necessity is allowed to inflate excessively then crisis is sure to ensue. That's not an economic issue - its an issue of basic morality.

How long until we have H20PI or O2PI?

I can just see the BTLers salivating at the prospect. Edited by Dave Spart

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Wage growth of 10% if avg salary is £17K a year.

17000
18700
20570
22627
24889.7
27378.67
30116.537
33128.1907
36441.00977
40085.11075
44093.62182
48502.984
53353.2824
58688.61064
64557.47171
71013.21888
78114.54077
85925.99484
94518.59433
103970.4538
114367.4991
125804.2491
138384.674
152223.1414
167445.4555
184190.001
202609.0011
222869.9013
245156.8914
269672.5805
296639.8386
326303.8224
358934.2047
394827.6251
434310.3877
477741.4264
525515.5691
578067.126
635873.8386
699461.2224
769407.3447
846348.0791
930982.887
1024081.176
1126489.293
1239138.223
1363052.045
1499357.249
1649292.974
1814222.272
1995644.499
2195208.949
2414729.844
2656202.828
2921823.111
3214005.422
3535405.964
3888946.561
4277841.217
4705625.338
5176187.872
5693806.659
6263187.325
6889506.058
7578456.664
8336302.33
9169932.563
10086925.82
11095618.4
12205180.24
13425698.27
14768268.09
16245094.9
17869604.39
19656564.83
21622221.31
23784443.45
26162887.79
28779176.57
31657094.23
34822803.65
38305084.01
42135592.41
46349151.66
50984066.82
56082473.5
61690720.85
67859792.94
74645772.23
82110349.46
90321384.4
99353522.84
109288875.1
120217762.6
132239538.9
145463492.8
160009842.1
176010826.3
193611908.9
212973099.8
£234,270,409.8

So end wage in 100 years would be £235m a year. Even bankers don't get that.

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[quote name='interestrateripoff' post='1715321' date='Mar 5 2009, 09:28 AM']So end wage in 100 years would be £235m a year. Even bankers don't get that.[/quote]

At least not as far as the tax man is concerned!

Judging by their Cheshire Cat like smugness, they probably do.



.............I should let this Alice in Wonderland thing go now shouldn't I?

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[quote name='Dave Spart' post='1715315' date='Mar 5 2009, 08:22 AM'][b]Whenever the price of any substitute-free necessity is allowed to inflate excessively then crisis is sure to ensue[/b]. That's not an economic issue - its an issue of basic morality.[/quote]
Indeed, what's Gordon's next masterplan... is he going to starve the Irish?

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[quote name='sillybear2' post='1715335' date='Mar 5 2009, 08:36 AM']Indeed, what's Gordon's next masterplan... is he going to starve the Irish?[/quote]

No, he's going to starve the English by taxing them to pay for Scottish banking and politicians mistakes whilst allowing said bankers and politicians to live in the lap of luxury with their gold plated pensions. :angry: :angry: :angry:

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With regards to the 10% Yoy HPI, I just found [url="http://www.bbc.co.uk/derby/content/articles/2008/02/20/memoryshare_1968_derbyshire_feature.shtml"]this[/url] article which says that you could buy a new [url="http://www.volvoclub.org.uk/history/144.shtml"]Volvo 144[/url] in 1968 for £1,353.

Assuming car prices had inflated 10% Yoy too, over the same period, a similar type car would now cost over £61,000.

Being generous, I think the nearest equivalent to the 144 nowadays is the [url="http://www.volvocars.com/uk/All-Cars-MY09/Volvo-S80/Pages/default.aspx"]S80[/url] which retails at £22,000.

No-one could afford to buy one and the car industry would go out of business.

Could you imagine that! The car industry going out of business! :lol: Don't be so ridiculous! :lol:

Er . . . :blink: Edited by Dave Spart

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no one has ever returned 10% year on year in the long run. fact.

manhatten was bought for 24$ nearly 400 years ago

if it had returned 10% year on year it would be into the quadrillions

anyone know anyone with a quadrillion $ ?

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[quote name='Dave Spart' post='1715356' date='Mar 5 2009, 08:50 AM']With regards to the 10% Yoy HPI, I just found [url="http://www.bbc.co.uk/derby/content/articles/2008/02/20/memoryshare_1968_derbyshire_feature.shtml"]this[/url] article which says that you could buy a new [url="http://www.volvoclub.org.uk/history/144.shtml"]Volvo 144[/url] in 1968 for £1,353.

Assuming car prices had inflated 10% Yoy too, over the same period, a similar type car would now cost over £61,000.

Being generous, I think the nearest equivalent to the 144 nowadays is the [url="http://www.volvocars.com/uk/All-Cars-MY09/Volvo-S80/Pages/default.aspx"]S80[/url] which retails at £22,000.

[b]No-one could afford to buy one and the car industry would go out of business.[/b][/quote]
Not if some bank came out with liar car loans on the basis that car prices only ever rise! That old Volvo is about the same size as the modern S60, but did the former version have ABS, air-con, power steering, etc? :lol: The CPI measure actually hedonically adjusts for such qualitative improvements and classifies it as deflation!

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[quote name='weebobby_getdoon' post='1715392' date='Mar 5 2009, 09:04 AM']no one has ever returned 10% year on year in the long run. fact.

manhatten was bought for 24$ nearly 400 years ago

if it had returned 10% year on year it would be into the quadrillions

[b]anyone know anyone with a quadrillion $ ?[/b][/quote]
That's exactly what they're asking in the head quarters of AIG as we speak.

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[quote name='interestrateripoff' post='1715280' date='Mar 5 2009, 08:00 AM']I just thought I'd post how damaging and unrealistic continued HPI of 10% is. Completely unsustainable over the long term, yet many I suspect where over extending to borrow money because house prices can only ever go up and they'll keep going up at the same rate.
[...][/quote]
It's completely unsustainable over the [i]short term[/i]! HPI like this sucks so much money out of the real economy and out of FTBs' pockets, that just five or six years of it will collapse the system, as we're now seeing.

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[quote name='dazednconfused' post='1715261' date='Mar 5 2009, 07:45 AM']My dear old Mum and Dad paid 2,500 for their first house in 1968.

The same house was on the market last year for 110,000.

Can you work out the annual rate of [s]monetary inflation[/s], err I mean appreciation in value.[/quote]

About 10%, funnily enough!

2,500 x (1 + 0.097)^(2009-1968) ~= 2,500 x 44.5 = 111,250

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[quote name='interestrateripoff' post='1715255' date='Mar 5 2009, 05:42 PM']Exponential house price growth.

For those who think big falls aren't possible here are some figures if your house is worth £100,000 what would happen if prices kept going up by 10% YoY.

First 50 Years.[/quote]

Any chance of running those numbers again using the current national median house price and projecting out for the next 50 years assuming that the growth figure is the same as what it was for the last fifty years?

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