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tomandlu

Houseprices And Inflation

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I never understand this - why is there an assumption that inflation = wage-inflation.

Because if you look back 25+ years to when those giving out that advice first bought houses, it was. It's always worth remembering that when someone in their 60s tells you "Inflation will pay off your mortgage", what they really mean is "Inflation paid off my mortgage".

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Without wage-rises, why should the real value have more weight than the nominal value? I can understand that it might make UK property more attractive to foreign investors, or investors holding assets not linked to sterling, but it doesn't make much difference to the average householder, does it?

In fact, it would seem that the opposite would be more likely. If we have inflation, but no wage rises, then the percentage of salary that you need to spend on essentials goes up, and the amount of money you have left to save for a house goes down.

So, inflation without wage increases would, intuitively, push the nominal value of houses down (and the real value way down). What have I missed/misunderstood?

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Wages vs House Prices is all that really matters.

To say HPI trend is 2.4%p.a. in real terms against CPI is meaningless. All that's saying is that CPI is 2.4% below wage inflation. Meaningless.

If you've got 500k in the bank and CPI or RPI hits 20%, but wage inflation is 0%*, then you're not really losing value of your savings. They can buy less, but still worth x years of working.

* some will say not possible, but I think it could be.

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* some will say not possible, but I think it could be.

I never understand this - why is there an assumption that inflation = wage-inflation.

FFS we spent a load of money we didn't have - what did we think would happen to our disposable income when it came time to pay it back?

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