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Nationwide Chart - Nominal And Real Figures

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I have just been looking at the Nationwide HPI details at:

http://www.nationwide.co.uk/hpi/historical.htm

and the chart: UK House prices adjusted for inflation (as on the home page)

What I find interesting is that the 2011 Q1 figure is : £162,379, this is a similar figure to the 2009 Q4 nominal figure (£162,116) but the difference in the 2009 Q1 real and nominal is over £10k, (£172,761 real 2009 Q1). Interestingly the real price in 2003 Q3 was £164,979!

This is what I think the government wants to happen, they would rather see a real price fall, but as long as the nominal doesnt change too much homeowners will think that its okay. The lack of a nominal price fall will also allow people to move house and not be trapped in a negative equity situation (if they can sell! and if they havent MEW'd).

I dont believe that the government will ever admit to a housing crash, or the possibility of a crash as there are too many home owners, who are emotionally attached, and other VIs that would be affected by a government admission of the possibility of a crash.

I dont think that the government can significantly influence the market, its just too big, but I think they would prefer the market to fall in the way it is now. While this may be give a short term break to some home owners it means that we need to see a lot of inflation to erode the real price and at some point that may convert into some changes in income, but it's going to be a slow process.

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I'm not so sure about the wont notice bit, people are noticing things albeit slowly.

I remember a child who came into a shop I was working in a while ago, he was asking for a pound for the guy.... when challenged he promptly said inflation.

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Except we are not experiencing a 'real' term price correction, as seen in the 1990s and 70s, due to inflation. In those previous house price crashes/corrections a fair chunk of the price falls were in real terms due to inflation. But it was inflation partnered by wage inflation and so mortgage debt was effectively eroded. Currently we have RPI/CPI inflation combined with wage deflation. In this current scenario wage deflation is acting to make nominal prices more expensive but so is CPI/RPI inflation due to eroding the worth of peoples incomes. Inflation isn't eroding mortgage debt, its making it harder/more expensive to service. Doesn't this mean we need larger nominal falls to compensate? Shouldn't real term house price movements be related to wage deflation/inflation rather than general inflation?

I don't mind being shown I am wrong in this thinking - indeed I would be interested to see other peoples views and opinions.

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I'm not so sure about the wont notice bit, people are noticing things albeit slowly.

I remember a child who came into a shop I was working in a while ago, he was asking for a pound for the guy.... when challenged he promptly said inflation.

That reminds me of back in around 1999 when I used to live in a boozer – my little brother would have been around 12 at the time and him and his mate made a Guy and placed it outside the pub.

Suffice to say ‘penny’ for the guy pretty quickly became ‘Quid for the Guy’, all of which went in the bandit later :lol:

I think they got over 100 quid in all.

Cocky little ……….

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Am i being really stupid but if you look at inflation adjusted figs, is a drop in price only a drop in price if wages are assumed to grow at the same level as inflation??

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Except we are not experiencing a 'real' term price correction, as seen in the 1990s and 70s, due to inflation. In those previous house price crashes/corrections a fair chunk of the price falls were in real terms due to inflation. But it was inflation partnered by wage inflation and so mortgage debt was effectively eroded. Currently we have RPI/CPI inflation combined with wage deflation. In this current scenario wage deflation is acting to make nominal prices more expensive but so is CPI/RPI inflation due to eroding the worth of peoples incomes. Inflation isn't eroding mortgage debt, its making it harder/more expensive to service. Doesn't this mean we need larger nominal falls to compensate? Shouldn't real term house price movements be related to wage deflation/inflation rather than general inflation?

I don't mind being shown I am wrong in this thinking - indeed I would be interested to see other peoples views and opinions.

+1

Fully agree

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I have just been looking at the Nationwide HPI details at:

http://www.nationwide.co.uk/hpi/historical.htm

and the chart: UK House prices adjusted for inflation (as on the home page)

What I find interesting is that the 2011 Q1 figure is : £162,379, this is a similar figure to the 2009 Q4 nominal figure (£162,116) but the difference in the 2009 Q1 real and nominal is over £10k, (£172,761 real 2009 Q1). Interestingly the real price in 2003 Q3 was £164,979!

This is what I think the government wants to happen, they would rather see a real price fall, but as long as the nominal doesnt change too much homeowners will think that its okay. The lack of a nominal price fall will also allow people to move house and not be trapped in a negative equity situation (if they can sell! and if they havent MEW'd).

I dont believe that the government will ever admit to a housing crash, or the possibility of a crash as there are too many home owners, who are emotionally attached, and other VIs that would be affected by a government admission of the possibility of a crash.

I dont think that the government can significantly influence the market, its just too big, but I think they would prefer the market to fall in the way it is now. While this may be give a short term break to some home owners it means that we need to see a lot of inflation to erode the real price and at some point that may convert into some changes in income, but it's going to be a slow process.

Schapps has said he wants HPI at around 2% less than wage rises. I make that negative growth for the forseeable future.

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Schapps has said he wants HPI at around 2% less than wage rises. I make that negative growth for the forseeable future.

Schnapps has been "clever" saying that he wants HPI more than zero but less than wage rises, so houses go up (hence no negative equity) but also become more affordable.

This plan is so cunning you could stick whiskers on it and call it a weasel! The only trouble is that housing would become affordable over the next 50 years. However, it's excellent as a politician's plan - attempts to please everyone.

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Except we are not experiencing a 'real' term price correction, as seen in the 1990s and 70s, due to inflation. In those previous house price crashes/corrections a fair chunk of the price falls were in real terms due to inflation. But it was inflation partnered by wage inflation and so mortgage debt was effectively eroded. Currently we have RPI/CPI inflation combined with wage deflation. In this current scenario wage deflation is acting to make nominal prices more expensive but so is CPI/RPI inflation due to eroding the worth of peoples incomes. Inflation isn't eroding mortgage debt, its making it harder/more expensive to service. Doesn't this mean we need larger nominal falls to compensate? Shouldn't real term house price movements be related to wage deflation/inflation rather than general inflation?

I don't mind being shown I am wrong in this thinking - indeed I would be interested to see other peoples views and opinions.

Exactly. What concerns me is what the price of housing is relative to my income, not how many loaves of bread its worth. It surprises me how much emphasis is placed on inflation adjusted falls when we have so little wage inflation, which as you say it should be judged against. To me, the only relevance cost inflation has is in reducing mortgage payer's ability to service their loan.

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Exactly. What concerns me is what the price of housing is relative to my income, not how many loaves of bread its worth. It surprises me how much emphasis is placed on inflation adjusted falls when we have so little wage inflation, which as you say it should be judged against. To me, the only relevance cost inflation has is in reducing mortgage payer's ability to service their loan.

+1 (or +4, not sure how many others have agreed with you.

It's the same argument from people say 'look at house prices in terms of gold/silver/oil/loaves of bread/Flanian pobble beads', and that's definitely an interesting relationship wrt affordability.

But it's irrelevant to people who don't get paid in gold/silver/oil/loaves of bread/Flanian pobble beads.

The only thing that matters to people who get paid in £££ is*wage* inflation in £££.

If wages are flat and CPI inflation is 5pc, then I'm going to feel poorer.

My anecdote of the day is ... I work in the City (*not* a bank I hasten to add, we didn't get a bailout although as lots of other people did, we'd quite like one if there's any spare cash). I spoke to a headhunter today who said 2011 bonus round is approx 50pc of 2007 bonus round. Now that's still a lot of cash, but if the City boys are being paid less then presumably there is less to be pumped into property.

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Exactly. What concerns me is what the price of housing is relative to my income, not how many loaves of bread its worth. It surprises me how much emphasis is placed on inflation adjusted falls when we have so little wage inflation, which as you say it should be judged against. To me, the only relevance cost inflation has is in reducing mortgage payer's ability to service their loan.

I totally understand the sentiment, but I think we need to draw a distinction between whether RPI-adjusted house prices are relevant for any particular group (in this case, the majority of the working UK population) as opposed to all the groups out there.

Like it or not, someone, somewhere is gaining from the UK’s relatively high inflation. Whether it be OPEC sovereign wealth funds, state employees (including Bank of England officers) with index-linked pensions, investment bankers with six /seven-figure bonuses, or simply UK individuals with high savings who happened to make the right bet on what would be the central bank response to the ‘threat’ of deflation, there are plenty of people who are seeing UK house prices fall quite significantly in real terms.

I fully appreciate that this isn’t an argument that many HPC members want to hear. However it’s the reality and it needs to be faced. If (for example) house prices fall another 30% in real terms over the next few years, there will be no shortage of buyers moving into the market even if wages in nominal terms stay relatively flat.

Many of these buyers will likely be making multiple purchases, with the genuine possibility of a return to a rentier society. However, whether that actually comes to pass is a long way from being a given. I suspect there is still some sort of backlash to come from the UK middle class, but what form that will take I have no idea.

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  • 312 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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