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Question Re: House Price Falls, Inflation And Wages

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If nominal house prices remain unchanged over 12 months but inflation is running at 5% then we can say that real house prices have fallen by 5% in real terms. Correct?

But if average wages don’t rise in line with inflation then real house prices are still no more affordable than they were the previous year.

Is that what’s happening at the moment and what implications will that have?

I presume it means that we’re just delaying the inevitable and that when prices do fall it’s more likely that they’ll fall faster and harder?

Would be grateful if someone could explain in layman's terms.

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If nominal house prices remain unchanged over 12 months but inflation is running at 5% then we can say that real house prices have fallen by 5% in real terms. Correct?

But if average wages don’t rise in line with inflation then real house prices are still no more affordable than they were the previous year.

Is that what’s happening at the moment and what implications will that have?

I presume it means that we’re just delaying the inevitable and that when prices do fall it’s more likely that they’ll fall faster and harder?

Would be grateful if someone could explain in layman's terms.

With inflation at 5%, but house prices static and wages static you could say houses have increased in real terms for the typical home buyer, because after spending an extra 5% on everything else from his/her static wages they will have less money to pay for a house/mortgage. So house prices will actually be more expensive in terms of the cost of living, even though it's nominal price remains unchanged and it's real price in a devalued currency is less than last year.

If on the other hand you bought a load of gold a year ago (£830/Oz), with nominal house prices unchanged and inflation at 5% over the following year (as has been the case), then sold that gold today ($930/Oz - 7% increase in real terms after subtracting 5% inflation) and bought a house , it would be cheaper in real terms than if you'd just saved the money in the bank and not invested it in gold.

Edited by General Congreve

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With inflation at 5%, but house prices static and wages static you could say houses have increased in real terms for the typical home buyer, because after spending an extra 5% on everything else from his/her static wages they will have less money to pay for a house/mortgage. So house prices will actually be more expensive in terms of the cost of living, even though it's nominal price remains unchanged and it's real price in a devalued currency is less than last year.

I'm going to ponder that one for a while. Not sure if I totally agree, but since I can't say why, I'll chew it over... Interesting point though, which I appreciate.

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I'm going to ponder that one for a while. Not sure if I totally agree, but since I can't say why, I'll chew it over... Interesting point though, which I appreciate.

If wages stay the same and nominal house prices stay the same but the cost of food, petrol, clothes etc. increase by 5% that means less money available to spend on housing.

I just worked out my monthly budget on a spreadsheet and projected forward two years on the basis of my wages staying the same and inflation running at 5% and I was shocked at how quickly my disposable income started to drop. I spend very little but even I would be over £120 worse off every month!

btw - love the avatar rantnrave - I'm a big fan of oldskool, still got my decks and mixer even after all these years. :)

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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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