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The Masked Tulip

How The Great Property Market Bail-Out Is Making You Poorer

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Yes, basically confirming what we think. Though I think inflation will hide only part (most?), but not all HP fall.

I would probably guess a 20-30% real price fall in the next 2-4 years, but split 10-15% each way - inflation + nominal fall.

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Edited by Tired of Waiting

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this is quite a neat way of hacking public sector pay and off balance sheet liabilities

private sector pay will eventually catch up again and beyond. public sect won't

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Yes, basically confirming what we think. Though I think inflation will hide only part (most?), but not all HP fall.

I would probably guess a 20-30% real price fall in the next 2-4 years, but split 10-15% each way - inflation + nominal fall.

To be clear, are you suggesting the average salary will increase by 10 - 15% over the next 2 - 4 years, and as such affordability to improve? Are you further expecting unemployment to remain at the same levels at least?

If not, wtf has 'inflation' (the figures for which are an utter fabrication at best anyway) got to do with house prices? Fewer pairs of trainers may be required to trade for a house I suppose.

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If not, wtf has 'inflation' (the figures for which are an utter fabrication at best anyway) got to do with house prices? Fewer pairs of trainers may be required to trade for a house I suppose.

pretty much it

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Interesting, though can't say I agree with her premise that its all to do with propping up the housing market.

IMO, what the economy needs is an active housing market, at any price level - the economic activity associated with an active housing market (think removals, furniture, appliances etc) is considerable. Wonder if anyone (like the BoE) has data on how much that's worth? By propping up high prices, surely the effect is to kill off all this associated activity? All in the name of "saving" banks and/or the over-borrowed.

Edited by Har Fast

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To be clear, are you suggesting the average salary will increase by 10 - 15% over the next 2 - 4 years, and as such affordability to improve? Are you further expecting unemployment to remain at the same levels at least?

Not at all. I think real salaries will fall. Nominal salaries may increase a little, and employment levels may decrease a little, with the resulting aggregate nominal salaries flatish.

If not, wtf has 'inflation' (the figures for which are an utter fabrication at best anyway) got to do with house prices?

Bit rude, isn't it?

Anyway, if you are measuring something with a unit, it is usually useful to know that this unit is shrinking.

Inflation is not exactly products or services or salaries going up. It is in fact the currency that is going down, losing value.

Fewer pairs of trainers may be required to trade for a house I suppose.

That too.

But the most important difference is if you know that we will have inflation, it may be wise to get a long term fixed, 5 or 10 years. The sterling you will have to pay back in 10 years will be worth much less than now. And by then even salaries will have cached up. Got it?

Edit to add: And if sterling will go down, it may also be wise to keep the deposit in various foreign currencies, diversified.

.

Edited by Tired of Waiting

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Interesting, though can't say I agree with her premise that its all to do with propping up the housing market.

IMO, what the economy needs is an active, at any price level - the economic activity associated with an active housing market (think removals, furniture, appliances etc) is considerable. Wonder if anyone (like the BoE) has data on how much that's worth? By propping up high prices, surely the effect is to kill off all this associated activity? All in the name of "saving" banks and/or the over-borrowed.

I think the main goal is to push sterling down, increasing our international competitiveness. We were living well beyond our means anyway, as a country. With a lower sterling imports will be repressed, and exports boosted.

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Not at all. I think real salaries will fall. Nominal salaries may increase a little, and employment levels may decrease a little, with the resulting aggregate nominal salaries flatish.

So how does inflation "hide part of it"? If prices are too high now, and real salaries fall, then surely house prices become less affordable?

Bit rude, isn't it?

Anyway, if you are measuring something with a unit, it is usually useful to know that this unit is shrinking.

Inflation is not exactly products or services or salaries going up. It is in fact the currency that is going down, losing value.

Not rude at all (nothing is meant personally, I am hoping someone will tell me I am totally wrong, and I will learn something), just trying to provoke thought/ discussion.

RPI and CPI both measure increases in prices of goods and services purchased by most households, as I understand it. Expanding on this, inflation is a rise in the level of prices of goods and services in the economy.

That too.

But the most important difference is if you know that we will have inflation, it may be wise to get a long term fixed, 5 or 10 years. The sterling you will have to pay back in 10 years will be worth much less than now. And by then even salaries will have cached up. Got it?

So are you advocating buying a house now, and getting a fixed rate mortgage? Inflation increases (prices of stuff goes up) and now salaries catch up in 10 years? I am not sure what you are getting at. The ONLY inflation that will make houses more affordable is wage inflation... since we agree salaries are likely to decrease, inflation in goods and services will only make them LESS affordable. In my humble opinion.

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I think the main goal is to push sterling down, increasing our international competitiveness. We were living well beyond our means anyway, as a country. With a lower sterling imports will be repressed, and exports boosted.

They've tried that - just hit another record trade deficit.

Just as predicted. There has been no reform and they are following the same shit for brains keep costs up and get the bankers bonuses going policy as before.

Edited by OnlyMe

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So how does inflation "hide part of it"? If prices are too high now, and real salaries fall, then surely house prices become less affordable? (...)

Yes, if salaries were to fall more than HP, then houses would become less affordable. And it doesn't matter if nominal or real. If you were just comparing one with the other, what matters is the relation between them.

BUT, most of us will get a mortgage to buy a house. In this case, if we get the inflation forecast right, we can choose the best mortgage, and the best timing.

Problem is, this is really difficult to do - to get the long term inflation forecast right - because it depends on politics, BoE, etc.

RPI and CPI both measure increases in prices of goods and services purchased by most households, as I understand it. Expanding on this, inflation is a rise in the level of prices of goods and services in the economy.

Yes, an increase in the "level of prices" - as measured in a currency. The higher price is the visible effect. The cause is the weaker currency.

So are you advocating buying a house now, and getting a fixed rate mortgage?

No, not yet. I think prices will fall fast in the next 6 months, or 1 year, (hopefully).

Inflation increases (prices of stuff goes up) and now salaries catch up in 10 years?

Exactly. If we have inflation (and I think we will), then at some point, in the long term, we should have salaries inflation also. A 10 years fixed rate mortgage would be easier to pay then.

BUT it is very difficult to get the timing right (to get a mortgage and buy a house). I don't know (nobody knows), how much inflation we will have, or the timing of it, and I don't know for how long the banks will keep current 10 years long term deals at 6%. Sorry. We are all just trying to analyse this mess here.

Edited by Tired of Waiting

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Yes, if salaries were to fall more than HP, then houses would become less affordable. And it doesn't matter if nominal or real. If you were just comparing one with the other, what matters is the relation between them.

So, you are saying that house prices will increase then, Since the relationship between them will be inversely proportional? Or that house prices will fall more than decreases in salaries? Either way, that's nothing to do with inflation in my mind.

BUT, most of us will get a mortgage to buy a house. In this case, if we get the inflation forecast right, we can choose the best mortgage, and the best timing.

Problem is, this is really difficult to do - to get the long term inflation forecast right - because it depends on politics, BoE, etc.

Who are "us" in this case. If lending criteria are more strict, surely less of us will get a mortgage, including people remortgaging. Also, what good does inflation do, if we don't experience wage inflation? Without wage inflation, the fixed rate mortgage gets MORE expensive, as inflation of goods and services increases. Do not forget about globalisation, and its effect on wages.

Yes, an increase in the "level of prices" - as measured in a currency. The higher price is the visible effect. The cause is the weaker currency.

No, inflation is an increase in money supply. We had rapid inflation in houses due to reckless lending, we may have inflation going forward due to QE.

No, not yet. I think prices will fall fast in the next 6 months, or 1 year, (hopefully).

What happens after that?

Exactly. If we have inflation (and I think we will), then at some point, in the long term, we should have salaries inflation also. A 10 years fixed rate mortgage would be easier to pay then.

BUT it is very difficult to get the timing right. I don't know (nobody knows), how much inflation we will have, or the timing of it, and I don't know for how long the banks will keep current long term deals at 6%. Sorry. We are all just trying to analyse this mess here.

By all accounts, inflation is already running away. The target is 2%, but I cannot remember the last time this was actually "achieved". So, are you talking about MORE inflation? Are wages increasing or decreasing? Is the cost of living increasing, or decreasing? What effect is this having on house affordability?

Will salary inflation lag inflation in goods and services in your view? How far behind? If it lags, the cost of living goes up regardless, so how does this increase affordability of houses?

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I think the main goal is to push sterling down, increasing our international competitiveness. We were living well beyond our means anyway, as a country. With a lower sterling imports will be repressed, and exports boosted.

Now if only we made things here and dind't salt the earth to manufacturing....

Oh and if only we had the raw materials to make stuff too.... in fact does the UK still make steel anymore these days?

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Yes, if salaries were to fall more than HP, then houses would become less affordable. And it doesn't matter if nominal or real. If you were just comparing one with the other, what matters is the relation between them.

BUT, most of us will get a mortgage to buy a house. In this case, if we get the inflation forecast right, we can choose the best mortgage, and the best timing.

Problem is, this is really difficult to do - to get the long term inflation forecast right - because it depends on politics, BoE, etc.

Yes, an increase in the "level of prices" - as measured in a currency. The higher price is the visible effect. The cause is the weaker currency.

No, not yet. I think prices will fall fast in the next 6 months, or 1 year, (hopefully).

Exactly. If we have inflation (and I think we will), then at some point, in the long term, we should have salaries inflation also. A 10 years fixed rate mortgage would be easier to pay then.

Except the banks would not give anybody fixed rate mortgages in preparation for this they would have hyperinflation + 3% mortgages instead.

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Yes, if salaries were to fall more than HP, then houses would become less affordable.

This is a great discussion, exploding some of the myths in the "real house prices" discussion.

2010: Av house £170,000 and av. wage £25,000

2012: Av house £160,000 and av. wage £25,500 (approx 1% increase in wage per year, about 6% nominal drop in house price)

General goods inflation running at 3% per year (optimistically low!).

This is approx an 8% fall in wage inflation adjusted prices.

It is about an 11% fall in goods inflation adjusted prices.

However, it is the wage inflation adjusted measure that is the most important, regardless of what the graph on the front page of HPC says...

People's debt is only inflated away insofar as their salary increases. Increase in general prices only serves to reduce disposable income.

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This is a great discussion, exploding some of the myths in the "real house prices" discussion.

2010: Av house £170,000 and av. wage £25,000

2012: Av house £160,000 and av. wage £25,500 (approx 1% increase in wage per year, about 6% nominal drop in house price)

General goods inflation running at 3% per year (optimistically low!).

This is approx an 8% fall in wage inflation adjusted prices.

It is about an 11% fall in goods inflation adjusted prices.

However, it is the wage inflation adjusted measure that is the most important, regardless of what the graph on the front page of HPC says...

People's debt is only inflated away insofar as their salary increases. Increase in general prices only serves to reduce disposable income.

Nicely put.

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  • 244 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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