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Adjusted For Inflation?

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It's adjusted for 'official price inflation' in that they estimate it would have taken the equivalent of 60,000 2010 pounds to buy the average house in 1978 and a bit over 200,000 2010 pounds to buy at peak idiocy in 2007.

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It's adjusted for 'official price inflation' in that they estimate it would have taken the equivalent of 60,000 2010 pounds to buy the average house in 1978 and a bit over 200,000 2010 pounds to buy at peak idiocy in 2007.

Sorry, but perhaps I'm being a bit thick. Surely a house price is a house price and cant be adjusted for inflation otherwise it gets out of step with the actual house price.

If they estimate it would have taken the equivalent of 60,000 2010 pounds to buy the average house in 1978 and a bit over 200,000 2010 pounds to buy at peak idiocy in 2007 then only one of these values is absolutely correct and every other value on the graph is mathematically calculated from inflation rather than being an actual figure.

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Yes, all the prices on that graph except for the final quarter are inflation-adjusted so are not the actual price of a house at that time, only the Nationwides calculation of what they would be now.

To put it another way assume their inflation measure is based on the cost of beer and in 2010 a pint was £3. In 1978 a house cost 20,000 pints (Was it? - can anyone remember, especially after 20,000 pints :D) but in 2007 it was almost 67,000.

I'm sure they used to show the actual price on their graph as well but it's still available in thir excel data to download.

On this graph the red line is actual price and blue their adjusted price.

hpiq42010.jpg

post-19739-0-49084100-1297559822_thumb.jpg

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Yes, all the prices on that graph except for the final quarter are inflation-adjusted so are not the actual price of a house at that time, only the Nationwides calculation of what they would be now.

To put it another way assume their inflation measure is based on the cost of beer and in 2010 a pint was £3. In 1978 a house cost 20,000 pints (Was it? - can anyone remember, especially after 20,000 pints :D) but in 2007 it was almost 67,000.

I'm sure they used to show the actual price on their graph as well but it's still available in thir excel data to download.

On this graph the red line is actual price and blue their adjusted price.

That graph is great, isn't it - probably a common misconception by others reading this graph - that house prices back in the day were £60,000 - I guess it makes it look not as bad as it is.

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That graph is great, isn't it - probably a common misconception by others reading this graph - that house prices back in the day were £60,000 - I guess it makes it look not as bad as it is.

Yet, in another sense, it makes things look a lot more extreme -- the 'real terms' graph shows how 'really' ridiculously out of whack things got in the immediately preceding housing bubble. On a 'nominal' graph, it might be easier to dismiss the latest peak as being 'mumble mumble something to do with inflation mumble'.

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Thanks guys that makes sense now.

Just so I am 100% clear. Only the last (latest) house price on the graph is actual and all historical prices are calculated against this using inflation data (RPI or CPI?).

So although the graph is useful for all sorts of things it cannot be used to look back at actual house prices in earlier year. If anyone could point out the location of that graph then it would be great to have it available.

Anecdotally I believe we are back to about 2005 actual prices would that be right?

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Thanks guys that makes sense now.

Just so I am 100% clear. Only the last (latest) house price on the graph is actual and all historical prices are calculated against this using inflation data (RPI or CPI?).

So although the graph is useful for all sorts of things it cannot be used to look back at actual house prices in earlier year. If anyone could point out the location of that graph then it would be great to have it available.

Anecdotally I believe we are back to about 2005 actual prices would that be right?

Another important thing to realise is that many of the previous dips were no where near so large in actual price changes as the graph shows. Let me explain... they look large because for a period the prices stagnated or fell (but only slightly), and inflation eroded away the "real price" of the homes in terms of sterling / earnings. From the graph you can end up thinking that transaction prices fell very considerably, but the data doesn't actually show that so strongly...

So to be specific, the graph "corrected data" shows prices at £122,904 in Q2 1989 falling to £76,981 in Q4 1995. A drop of 37%

but the actual average prices were:

£62,244 in Q2 1989 and dropped to £50,930 which is only a 19% drop in actual transaction prices.

If you go back to the dip before, eg 1979 to 1982 the prices actually rose over that period and the drop was entirely in the inflation corrected data.

The data is on the nationwide site, linked off the graph page of hpc.

As Benjamin reputedly said

"there's lies, damned lies, and statistics"

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Thanks guys that makes sense now.

Just so I am 100% clear. Only the last (latest) house price on the graph is actual and all historical prices are calculated against this using inflation data (RPI or CPI?).

So although the graph is useful for all sorts of things it cannot be used to look back at actual house prices in earlier year. If anyone could point out the location of that graph then it would be great to have it available.

Anecdotally I believe we are back to about 2005 actual prices would that be right?

All historical prices are calculated agains thier actual price a with an adjustment for inflation

You've already been given it here

I'm sure they used to show the actual price on their graph as well but it's still available in thir excel data to download.

On this graph the red line is actual price and blue their adjusted price.

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Looking at the Nationwide table of data a couple of things stand out which are useful for price comparisons

Todays house prices are about the same as those in March 2006.

Those people that bought in Feb 09 paid the equivalent of a house bought in May 04, so they continue to have a bargain, but for how long. ;)

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Shame it doesnt go back further. Today we accept that in todays money £60-75k is where house prices always trough out.

In the 1930s in todays money house prices were stable at under £40k.

If food and fuel continue to rise and take up more of peoples earnings, i wouldnt be surprised to see that level reached again.

I remember posting a chart a few years back suggesting that if previous booms were replicated, we would trough out at x1 times earnings (though it would take 15-20 years to get there)

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Shame it doesnt go back further. Today we accept that in todays money £60-75k is where house prices always trough out.

In the 1930s in todays money house prices were stable at under £40k.

If food and fuel continue to rise and take up more of peoples earnings, i wouldnt be surprised to see that level reached again.

I remember posting a chart a few years back suggesting that if previous booms were replicated, we would trough out at x1 times earnings (though it would take 15-20 years to get there)

I would like to know more about the attitudes towards housing in the 1930s, it seems to me that lots of houses were built between 1890 and 1910 that were large villas in South-London (for example), and they very much fell into disrepair by the 1950s and 1960s. Now the slaughter of the two world wars may have had an effect, but I think also the growth of modernism, the ending of having servants, the establishment of the welfare state, all had an impact.

It is very hard to go back too far and draw lessons about the trough, in the 1930s there was no welfare state, most people didn't own their own houses, mortgages were very hard to get, we were still on the gold standard, women mostly didn't work, etc. All of which could mean that instead of x1 times earnings it ought to x3 earning, or x5 earnings, or whatever...

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Looking at the Nationwide table of data a couple of things stand out which are useful for price comparisons

Todays house prices are about the same as those in March 2006.

Those people that bought in Feb 09 paid the equivalent of a house bought in May 04, so they continue to have a bargain, but for how long. ;)

The real chart shows we're back at about Q1 2003, you must compare against the inflation adjusted chart otherwise its like comparing a money burried in the ground to money saved in a bank account.

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The real chart shows we're back at about Q1 2003, you must compare against the inflation adjusted chart otherwise its like comparing a money burried in the ground to money saved in a bank account.

Unless it's gold in the ground.

Sorry, couldn't help myself.

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The real chart shows we're back at about Q1 2003, you must compare against the inflation adjusted chart otherwise its like comparing a money burried in the ground to money saved in a bank account.

Surely thats only if you are treating property as an investment.

If you are looking to buy, and want to get a handle on historical prices, then surely you ignore inflation. In other words, you would hope to pay no more than the house sold for in Q1 2006.

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Unless it's gold in the ground.

Sorry, couldn't help myself.

Kerching

Surely thats only if you are treating property as an investment.

If you are looking to buy, and want to get a handle on historical prices, then surely you ignore inflation. In other words, you would hope to pay no more than the house sold for in Q1 2006.

No you would hope to pay no more in real terms (inflation adjusted) as the house cost in Qx xxxx so as to make a real comparison to the purchasing power.

As an aside, the interest in the bank/money in the ground is a bit flawed as bank interest will never make up for the loss in purchasing power but will do better than money in the ground (unless its gold)

Edit for:This should give you a better understanding of what money is and how it has value and be able to corroborate that value to the value of other things

http://www.chrismartenson.com/crashcourse

but there are a lot of videos

Edit again-think of the long term rise in house prices (supply/demand excluded) as a fall in the value of the pound.

Edited by zebbedee

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We've talked about this graph adjusted for inflation, and also the "raw data" graph, and "adjusted relative to average wages".

is there such a graph as house prices relative to the M4 money supply?

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