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Calculations.. We Must Have Nominal Drops

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When looking at a few houses recently, and their bloated prices, it made me cast my mind back to the two properties I bought in 1996 (£257k) and 1998 (£56k), and what they would be worth today taking standard inflation (not housing inflation) into account.

According to ThisIsMonkey:

£257k in 1996 is now £362k in real terms.

£56k in 1998 is now £75k in real terms.

Now neither of them were particularly a bargain at the time, they were just the going rate. And yet, today the "market value" for both is pretty much double what the "real term" value is.

To my eyes, given how desperate the state of the countries finances are, I see no reason why properties can't return to their "real term" value. I don't think that many more women are working since 1998 to account for double-income mortgages.

People say that we're only going to see real-term drops, not nominal (or very small nominal).

With wage inflation at 2%, it'd take over 20yrs for prices to be eroded by wage inflation alone to get to the value of property in 1996/1998.

Given the natural churn in property of about 4% (due to deaths etc) and given the deposits the banks are requiring, I don't see how these drops are going to be real-term only.

RPI style inflation in excess of wage inflation doesn't cheapen property in real terms, it makes it more expensive, since money doesn't go as far on other things, leaving less for housing.

Thoughts ?

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I've only bought two houses. The first in 81, with prices well on the way down. We were lucky.

The second in 96 with prices at the bottom of the pit. We were a bit smarter that time and picked our moment. One of the over-priced properties we looked at had been on the market for 3 years and they wouldn't budge. They are still living there today, it never sold. I suspect it will be the same for many of them this time.

I've been waiting 4 years for prices to hit the depths again and I'm happy to wait another 5 until the market is in tatters once more.

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Thoughts ?

Inflation is wrong.

Real wages have been falling for quite some time.

Property ownership has peaked.

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I sold a flat just off Great Pulteney street in Bath for 60K in 1997. Roughly the bottom of the market. That's 89K in todays money.

The flat has changed hands a few times in the intervening 13 years. The last transaction was at roughly the peak of the market in Aug 2006 at 208K. Thats 245K in todays money.

Not sure how far Bath has dropped since the peak but I doubt it has reached 1997 levels yet.

All figures calculated using RPI indexing

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I've only bought two houses. The first in 81, with prices well on the way down. We were lucky.

The second in 96 with prices at the bottom of the pit. We were a bit smarter that time and picked our moment. One of the over-priced properties we looked at had been on the market for 3 years and they wouldn't budge. They are still living there today, it never sold. I suspect it will be the same for many of them this time.

I've been waiting 4 years for prices to hit the depths again and I'm happy to wait another 5 until the market is in tatters once more.

Starting to feel a lot more like the late 80's early 90's. Not a lot appearing to happen, same spammy bullsh*t in the press, but the tectonic plates are starting to shift in the right direction.

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According to ThisIsMonkey:

£257k in 1996 is now £362k in real terms.

£56k in 1998 is now £75k in real terms.

http://www.thisismoney.co.uk/historic-inflation-calculator

the calculator you used stops at 2008.... which would make it 2.8% over that period, which seems low, but it would push the £362K valuation to £391k at the end of 2011.

add in 5 more years of 5% inflation and there you push 391k to 499k, thus double the 1996 price and no need for nominal falls

Everyone's a winner :) or something

edit: oops, hang on I see what you're saying, the 257k house is now worth 720k (double the 360?). In that case yeah, 12 years of 5% inflation and no house price rises may be pushing it... on the other hand weren't houses historically under-valued mid 90s after the correction? You really need to comapre it with wage inflation rather than goods/services inflation anyways to measure affordability

Edited by noodle doodle

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Inflation is wrong.

Real wages have been falling for quite some time.

Property ownership has peaked.

Inflation is wrong.

It has been massively under-reported for years.

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When looking at a few houses recently, and their bloated prices, it made me cast my mind back to the two properties I bought in 1996 (£257k) and 1998 (£56k), and what they would be worth today taking standard inflation (not housing inflation) into account.

According to ThisIsMonkey:

£257k in 1996 is now £362k in real terms.

£56k in 1998 is now £75k in real terms.

Now neither of them were particularly a bargain at the time, they were just the going rate. And yet, today the "market value" for both is pretty much double what the "real term" value is.

To my eyes, given how desperate the state of the countries finances are, I see no reason why properties can't return to their "real term" value. I don't think that many more women are working since 1998 to account for double-income mortgages.

People say that we're only going to see real-term drops, not nominal (or very small nominal).

With wage inflation at 2%, it'd take over 20yrs for prices to be eroded by wage inflation alone to get to the value of property in 1996/1998.

Given the natural churn in property of about 4% (due to deaths etc) and given the deposits the banks are requiring, I don't see how these drops are going to be real-term only.

RPI style inflation in excess of wage inflation doesn't cheapen property in real terms, it makes it more expensive, since money doesn't go as far on other things, leaving less for housing.

Thoughts ?

While some people are willing to pay the current going rate houses aren't going to budge, nothing serious will happen until pretty much everyone stops buying these "falling assets" with money they neither have or can guaranty paying for the next 20 years.

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1996-98 was cheap. I rushed back to this country in 1997 to buy, thinking this was going to the deal of a timetime (it was).

My mortgage was around 8% then, it is 2.2% now.

I expect only small nominal decreases now (<10%), with say 10 years for the real prices to adjust to say 30% off current levels and the government supports for the housing market can subside.

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I expect only small nominal decreases now (<10%), with say 10 years for the real prices to adjust to say 30% off current levels and the government supports for the housing market can subside.

Maybe it's wishful thinking on my part, but part of me wonders if we're still in the bear trap.. as even rabid HPCers think there will be no nominal drops they start to consider buying.

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When looking at a few houses recently, and their bloated prices, it made me cast my mind back to the two properties I bought in 1996 (£257k) and 1998 (£56k), and what they would be worth today taking standard inflation (not housing inflation) into account.

According to ThisIsMonkey:

£257k in 1996 is now £362k in real terms.

£56k in 1998 is now £75k in real terms.

Now neither of them were particularly a bargain at the time, they were just the going rate. And yet, today the "market value" for both is pretty much double what the "real term" value is.

Thoughts ?

I've been looking at this and done a spreadsheet using CPI and RPI figures from March (because I did it in April) each year since 1997.

I make

£257k in 1996 £347k on CPI and £394k on RPI

£56k in 1998 £73k now on CPI and £81k on RPI

My figures are comparable and use inflation figures up to this year while the ThisIsMoney calculator stops at 2008 - do they use just CPI?

So if you think this is a valid guide, how much would you be happy to pay now for the £257k or £56k house?

I cannot post the spreadsheet but can do an image of it so using £100k as a base, any figure can be calculated.

hpicpirpi.jpg

post-15752-0-88195200-1306408283_thumb.jpg

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There's 20% further to fall in real terms, and it will be a combination of nominal falls and inflation. Wage inflation is low at the moment, but it will pick up when (not if) the economy is stronger in a few years time. It's naive to project 2% wage inflation 20 years into the future.

Exactly how that 20% is made up (nominal vs inflation) depends large 3 variables - interest rates, unemployment, and the availability of credit.

I suspect that relative to price inflation houses will become cheaper quite quickly, but still quite expensive relative to wage inflation. I doubt that we'll see houses as cheap relative to wages as we saw at the bottom in 1996.

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I sold a flat just off Great Pulteney street in Bath for 60K in 1997. Roughly the bottom of the market. That's 89K in todays money.

The flat has changed hands a few times in the intervening 13 years. The last transaction was at roughly the peak of the market in Aug 2006 at 208K. Thats 245K in todays money.

Not sure how far Bath has dropped since the peak but I doubt it has reached 1997 levels yet.

All figures calculated using RPI indexing

Bath not dropping. The change for all areas I am monitoring (BA1,BA2 and BS39) are flat but since volumes have reduced (early 2008) the price graph is flat but widely variable as biased by occasional high priced sales.

My link

Increase time on graph of link to see trend change from smoother increasing to flat variable. This is true for all areas above.

Are there areas showing declining trend yet?

Here it is a "fight/wait" for money off any individual property rather than a clear trend of selling price decrease.

Edited by man o' the year

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There's 20% further to fall in real terms, and it will be a combination of nominal falls and inflation. Wage inflation is low at the moment, but it will pick up when (not if) the economy is stronger in a few years time. It's naive to project 2% wage inflation 20 years into the future.

Exactly how that 20% is made up (nominal vs inflation) depends large 3 variables - interest rates, unemployment, and the availability of credit.

I suspect that relative to price inflation houses will become cheaper quite quickly, but still quite expensive relative to wage inflation. I doubt that we'll see houses as cheap relative to wages as we saw at the bottom in 1996.

why do you think this, economic outlook surely far far worse than `96, we had the tech, housing and credit booms to create employment, what next? what will stop housing just plummeting?

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I'm going to state that I think the market will bottom out at an average house price of £132k, whatever % that represents.

However I am not sure of timescales while markets are being intervened with.

Let's see who's right.

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Surely without cheap credit it is just the multiples of your wage that the bank will lend that ultimately decides house prices?

No. House prices fell in early nineties with banks still willing to lend at the same multiples as the end of the eighties. Rising interest rates and unemployment are bigger factors in deciding prices.

Just because a bank will lend you up to £100K doesn't mean you have to take it all. Some people did and became highly leveraged. Should rates return to 2005 levels, those that have taken out mortgages since will suffer badly.

http://www.moneyworld.com/bank-base-rates.htm

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Thoughts ?

Your measuring sticks are all wrong. Over the period in question the allocation of nominal spending between assets versus goods and services has changed considerably, presumably due to the other changes going on in the economy including but not limited to interest rate declines. Whether the spending allocation between these two categories reverts to previous trends or not is an open question but IMO its too early to say. I would suggest that if house prices in future come to reflect a shift back to old trends (extant prior to 1995) then so should equities and other asset classes. Ask yourself whether this is likely in these latter classes.

I firmly believe that the differences in yield available on housing and equities and other asset classes will remain broadly in line with one another and broadly minimal from now on.

Imagining that some asset class (for example housing) will suddenly start delivering massive yields (lets define massive as greater than a few percent) is IMO wishful thinking.

If you look at the historical data you'll see that 1987-1996 is very much an anomaly in the long run trend of yield on real estate (and other assets), not "the norm".

Comparing to a 199x baseline continues to mislead the majority of people here IMO.

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There's 20% further to fall in real terms, and it will be a combination of nominal falls and inflation. Wage inflation is low at the moment, but it will pick up when (not if) the economy is stronger in a few years time. It's naive to project 2% wage inflation 20 years into the future.

Exactly how that 20% is made up (nominal vs inflation) depends large 3 variables - interest rates, unemployment, and the availability of credit.

I suspect that relative to price inflation houses will become cheaper quite quickly, but still quite expensive relative to wage inflation. I doubt that we'll see houses as cheap relative to wages as we saw at the bottom in 1996.

Yeah looking at a loaf of bread price in the long term at 1.02% per year I can't see it being £1.78 in 20 years time (1.02^20 * £1.20 = £1.78). At 10% a year puts the loaf about £8 in 20 years.

My maths might be off.

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No. House prices fell in early nineties with banks still willing to lend at the same multiples as the end of the eighties. Rising interest rates and unemployment are bigger factors in deciding prices.

Just because a bank will lend you up to £100K doesn't mean you have to take it all. Some people did and became highly leveraged. Should rates return to 2005 levels, those that have taken out mortgages since will suffer badly.

http://www.moneyworl...-base-rates.htm

Lending practices in the early 90`s can`t be compared with early 2000`s, two different worlds, I think it is beyond doubt that recently, sheeple will take anything and more (mum and dad top ups) from a bank to buy property? I agree that rising rates and unemployment will also be factors this time, but bigger than the collapse of the biggest ponzi/credit scam in history? The size of the bubble was due to the availability of credit, the size of the collapse will correspond to the extent of the withdrawl of credit IMO.

Edited by dances with sheeple

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Inflation is wrong.

Real wages have been falling for quite some time.

Property ownership has peaked.

That's coz Bankers + Big Business are not tied down to a Gold or similar standard.

They can inflate/manipulate and ramp housing/ the economy till it bursts every time - without regulation.

People only had excess cash to blow (in all sectors) cos of lax banker bonus-led lending/City gambling which enables these bubbles in a much worse fashion.

Within three years of Thatcher's "Big Bang" deregulation in 86 we had houses doubling in price (within a couple of years) as Bankers played the population for all it's worth with lax lending. Ending in the burst of 89-90

Also this - NOT outright Banker/Accounting fraud but $1.4 Billiion fine paid out for bad advice - 'mis-selling'!

http://business.time...icle5175723.ece

"It turned market manipulation from a moonlighting pastime into an unwritten code of (City) professional best practice.

Ironically, the whistle was blown in New York in 2001-02 when Eliot Spitzer, the state's attorney-general, threatened legal proceedings against Citigroup, Merrill Lynch and others for manipulating their research advice to investors in order to shield the business failures of their corporate clients. At his moment of maximum leverage, Mr Spitzer settled, bizarrely, in May 2003 for fines totalling $1.4 billion and accepted agreements from banks to tighten up their internal procedures."

The fact that successive changes in Govt have failed to implement proper regulation(in fact they removed nearly all regulation) on them shows how deep the corruption runs amongst our double-standards politicians and the UK Elites!

Stuck to a Gold Standard we would be back to bankers lending 2x single wage over 15yrs, as Orwell described buying a house in the 30's!

The houses are exactly the same item they were in the 30's - except the unregulated bankers have manipulated the prices up 1000 percent to make you a bankers interest slave payer for 35yrs

Edited by erranta

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I firmly believe that the differences in yield available on housing and equities and other asset classes will remain broadly in line with one another and broadly minimal from now on.

Imagining that some asset class (for example housing) will suddenly start delivering massive yields (lets define massive as greater than a few percent) is IMO wishful thinking.

Falling rents then ;)

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  • 284 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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