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LuckyOne

House Prices: Inflation Wipes Thousands Off Property Values

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Slowly but surely the "truth" about housing is starting to come out. In the last five years it has been a very poor way to protect wealth in real terms apart from in a few select postcodes in outrageously expensive bits of London.

In real terms, your house isn't going to be your pension after all.

http://www.telegraph.co.uk/finance/personalfinance/borrowing/mortgages/8626790/House-prices-inflation-wipes-thousands-off-property-values.html

Do you think you are a winner at the house-price game? Even if your home hasn't lost monetary value since you've bought it, rampant inflation means that most people who bought a property after 2006 have seen their house price decrease in real terms.

According to analysis from LSL Property Services, house prices have increased by just 11pc between 2006 and 2011, which means that the actual worth of the average home has gone down.

This is because inflation has increased by 17pc in the same period, while salary growth is up 15pc. For home owners in many parts of the country, the situation is far worse. Property prices in East Anglia and the North West have been fairly static since 2006, while home owners in the East Midlands have lost money. The total picture is being skewed by London.

This effect is having huge consequences on personal wealth. For example, a home owner who bought a property in the North West for £250,000 in 2006 may think they have lost no money if it is still valued at that level today. However, in real terms that house has lost more than £42,500 since 2006, because of inflation over the period of 17pc.

Ray Boulger, of mortgage broker John Charcol, said most people didn't realise that they would have lost money even if their house price stayed the same. "The house price falls in the Nineties were much worse than most people think they were, because inflation was so high," he said. "People think that they bought a home at a certain price. When they sell it they regard what they make as a real gain, whether it is due to inflation or not. They simply don't factor it in, although they should."

The toxic combination of rising inflation and falling or static house prices is set to continue for some time to come, with economic forecasters now expecting interest rates to remain low, encouraging inflation. The situation will further erode Britain's housing wealth – much of which is being saved up to pay for long-term care.

Simon Kirby, an economist at the National Institute of Economic and Social Research, is forecasting a further five-year period during which house prices will not outrun inflation. The NIESR is forecasting that property values in Britain are set to fall by 4.5pc this year and by 10.5pc by the end of 2015, in real terms. Mr Kirby said this fall would add to national economic weakness. "When people have equity in their homes because their house price has outstripped inflation, they feel that they need to save less for retirement and so they spend more now," he said, adding that house-price wealth also encouraged people to remortgage and spend money on home improvements.

Even those who have become used to living with substantial equity in their homes could struggle as the divergence between inflation and house prices continues. According to the LSL figures, house prices rose by 79pc in the five years to 2006, while inflation was only 11.7pc over the period. However, another five years of rising inflation and falling house prices could erode much of that equity.

Edited by LuckyOne

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How many financially illiterate folk are trying to pile back into BTL at the moment, not having grasped this vital point. At 3%, the annual return on my online saver is below inflation. But it's doing a heck of a lot better than most property.

It doesn't need maintenance or have void periods either :D

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How many financially illiterate folk are trying to pile back into BTL at the moment, not having grasped this vital point. At 3%, the annual return on my online saver is below inflation. But it's doing a heck of a lot better than most property.

It doesn't need maintenance or have void periods either :D

I have tried to make a few points in the comments section :

- "My house is my pension" might not be a good strategy in real terms

- Price inflation will not necessarily translate into wage inflation

- Inflationary effects might overwhelm the effect of low interest rates on household budgets

- House prices are too high relative to incomes

- Negative real rates are causing a weak pound

- A weak pound is causing inflation

- For most, their personal inflation rate exceeds official inflation rates

I don't want to "troll" their article but I tried to touch on a few of the basic issues in a more mainstream media outlet.

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I have tried to make a few points in the comments section :

- "My house is my pension" might not be a good strategy in real terms

- Price inflation will not necessarily translate into wage inflation

- Inflationary effects might overwhelm the effect of low interest rates on household budgets

- House prices are too high relative to incomes

- Negative real rates are causing a weak pound

- A weak pound is causing inflation

- For most, their personal inflation rate exceeds official inflation rates

I don't want to "troll" their article but I tried to touch on a few of the basic issues in a more mainstream media outlet.

I'd agree with all of that. Alas, I don't know if it's pitched at a level that the average Joe would understand. Not that I'd know how to put it across in such a way either, without being offensive and then being ignored as a fruitloop.

The problem we've had over much of the last decade is that at a simple level, the sheeple believe they have done very well from house price inflation. We know better. They don't and very people want or even know how to break that news to them.

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I'd agree with all of that. Alas, I don't know if it's pitched at a level that the average Joe would understand. Not that I'd know how to put it across in such a way either, without being offensive and then being ignored as a fruitloop.

The problem we've had over much of the last decade is that at a simple level, the sheeple believe they have done very well from house price inflation. We know better. They don't and very people want or even know how to break that news to them.

i always find beating around the bush to make a point is wasted time, might as well cut down those few lines by lucky to the nub of it

Yer fcked/We're fcked*

*Depending on whether you want to share the love or not like a politician

Edited by georgia o'keeffe

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I'd agree with all of that. Alas, I don't know if it's pitched at a level that the average Joe would understand. Not that I'd know how to put it across in such a way either, without being offensive and then being ignored as a fruitloop.

The problem we've had over much of the last decade is that at a simple level, the sheeple believe they have done very well from house price inflation. We know better. They don't and very people want or even know how to break that news to them.

Each of us have our own style of writing. I know that mine comes across as too complicated and that I often assume too much about what the intended audience understands.

The intended audience in the mainstream media also have a varied level of understanding and style of writing that they "click" with.

I think that each of us can reach a part of the overall audience by sticking to our own styles. The mapping won't be a perfect 1:1 but I do think that we can have a small influence on the overall audience by plugging away at a few basic themes.

I do agree that it is a slow process. People have had some behaviours reinforced by what has happened to the housing market in the last 15 years or so. Many people will not "unlearn" what they think that they have "learned" very quickly. They will be the ones who are hurt the most.

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i always find beating around the bush to make a point is wasted time, might as well cut down those few lines by lucky to the nub of it

Yer fcked/We're fcked*

*Depending on whether you want to share the love or not like a politician

I did spread them through a few different comments with an attempt at a bit of an explanation.

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Maybe so - but if you're a prospective property buyer it makes c0ck-all difference does it?

In fact at the moment with price inflation racing ahead of wage inflation, housing in this country may be becoming cheaper 'in real terms' but it's becoming less affordable - not more.

We need real price drops - not just inflation-adjusted ones!!

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Maybe so - but if you're a prospective property buyer it makes c0ck-all difference does it?

In fact at the moment with price inflation racing ahead of wage inflation, housing in this country may be becoming cheaper 'in real terms' but it's becoming less affordable - not more.

We need real price drops - not just inflation-adjusted ones!!

At the moment, we don't have a housing market. Volumes are too low to say that individual sales are taking place at an overall market clearing price.

Articles like this might help increase the supply side of the market and discourage hoarding.

For as long as prices remain unaffordable, the market can't clear based on the demand side. It is going to have to be the supply side that moves to get volumes back to overall market clearing levels. This can only happen at lower prices.

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Now, what else could I buy that might help in this situation ... ?

A globally diversified portfolio of low p/e, high dividend yielding stocks of companies rated A or better, linkers and REITs which invest in lightly leveraged properties at 30 year fixed rates in markets where prices are at a sustainable multiple of incomes and average rents are less than 30% of average, after tax incomes?

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Household income http://www.statistics.gov.uk/cci/nugget.asp?id=334

From the above there will be many with low household incomes but a large equity value on their effective balance sheet because of rising house prices (for example the state pensioner in a 4 bed house). This issue is also feeding through into care home provision policy - loads of equity but small household incomes.

The Boe do seem quite determined now.

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Flats in my slightly shabby part of West London are selling for half a million, leasehold. A really nasty bed sit went for £220K. We can't work out who is buying these things. The wage you would have to be on to pay the mortgage would mean that you wouldn't want to only be living in a shabby one bed flat. It's insane, who is buying these flats?

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Household income http://www.statistics.gov.uk/cci/nugget.asp?id=334

From the above there will be many with low household incomes but a large equity value on their effective balance sheet because of rising house prices (for example the state pensioner in a 4 bed house). This issue is also feeding through into care home provision policy - loads of equity but small household incomes.

The Boe do seem quite determined now.

I think that the contribution of housing to net balance sheets at the age of 70 might be quite different for people who are 20, 30, 40, 50, 60 and 70 to-day.

What worked in the past might not work in the future.

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Is leverage, and rising rents a factor in this too?

Leverage at floating rates is a risk.

The more likely direction of rents in a high inflation, low wage growth environment is lower rather than higher. Despite all of the talk about rising rents, my rent is 10% lower than what the previous tenant paid.

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What worked in the past might not work in the future.

Spot on. The best place to store personal wealth over the medium, yet alone long-term, is dynamic and fluctuating - it keeps changing and you need to keep on top of that. The fact that property has had such a good run over the last decade in itself suggests that's not where money will be made in the future. Unfortunately, far more people understand buying and selling houses because they need one to live in, unlike say trading in forex, shares and yes, the shiny stuff. So many people have arrived late to the house price inflation party and are going to be very disappointed (at best, they'll also be left seriously indebted / bankrupt too).

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Spot on. The best place to store personal wealth over the medium, yet alone long-term, is dynamic and fluctuating - it keeps changing and you need to keep on top of that. The fact that property has had such a good run over the last decade in itself suggests that's not where money will be made in the future. Unfortunately, far more people understand buying and selling houses because they need one to live in, unlike say trading in forex, shares and yes, the shiny stuff. So many people have arrived late to the house price inflation party and are going to be very disappointed (at best, they'll also be left seriously indebted / bankrupt too).

Agreed.

I have always thought of investing as understanding the powerful, albeit mostly slow, force of mean reversion and identifying factors which might change the long run mean in the future.

People seem to lose or make the most money when prices deviate the most from their long run mean and the market ignores the lessons of mean reversion for an extended period of time creating either despair or euphoria.

I believe that UK residential house prices are a very long way from their long run mean and that the conditions are right for a strong period of mean reversion.

The process of reverting to the mean is sometimes slow and arduous and it is quite easy for people to lose faith in the process because it doesn't happen as quickly as it "should".

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Agreed.

I have always thought of investing as understanding the powerful, albeit mostly slow, force of mean reversion and identifying factors which might change the long run mean in the future.

People seem to lose or make the most money when prices deviate the most from their long run mean and the market ignores the lessons of mean reversion for an extended period of time creating either despair or euphoria.

I believe that UK residential house prices are a very long way from their long run mean and that the conditions are right for a strong period of mean reversion.

The process of reverting to the mean is sometimes slow and arduous and it is quite easy for people to lose faith in the process because it doesn't happen as quickly as it "should".

Aye - any system where the majority of people are making major financial gains cannot and will not last long, despite the best efforts of govts to keep the party going so they can win elections.

Slight tangent - I really believe that if cars kept their value, we could just as easily have a bubble in them because it is an asset that sheeple are comfortable trading in.

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Slight tangent - I really believe that if cars kept their value, we could just as easily have a bubble in them because it is an asset that sheeple are comfortable trading in.

25 years ago in Zimbabwe that was certainly the case. An old Merc would sell for 250,000 Zim dollars. (around 40 or 50,000 Gbp official rate) This was around the price of 'a white man's house'.

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Flats in my slightly shabby part of West London are selling for half a million, leasehold. A really nasty bed sit went for £220K. We can't work out who is buying these things. The wage you would have to be on to pay the mortgage would mean that you wouldn't want to only be living in a shabby one bed flat. It's insane, who is buying these flats?

probably the same people that read this sh*t in the same paper

from the personal 'finance' (sic) editor, laughably:

http://blogs.telegraph.co.uk/finance/ianmcowie/100010756/buy-to-let-boom-winners-and-losers-hello-generation-rent-goodbye-social-mobility/

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they forgot to add in the cost of loan servicing, maintenance and other costs associated with this "investment".

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<br />I have tried to make a few points in the comments section :<br /><br />- "My house is my pension" might not be a good strategy in real terms<br />- Price inflation will not necessarily translate into wage inflation<br />- Inflationary effects might overwhelm the effect of low interest rates on household budgets<br />- House prices are too high relative to incomes<br />- Negative real rates are causing a weak pound<br />- A weak pound is causing inflation<br />- For most, their personal inflation rate exceeds official inflation rates<br /><br />I don't want to "troll" their article but I tried to touch on a few of the basic issues in a more mainstream media outlet.<br />

Inflation = Daylight Rob_bery/MuGGing (If your wages, pension/welfare payments don't keep similarly increasing)

That's why the Unions in the 70's fought the Govt and Big Business to ensure workers wages, Pensions and benefits were increased in line with the rampant inflation various policies caused in that time!

Now various successive Govts have hobbled the unions (for Big Business), got their under_mining stooges in place and decimated them by implementing obstructive new 'legislation'!

The clever ones in the Unions knew what robbery was going on which is why they fought hard and at the time the Elites even had a stooge in place, the witty "Red-Robbo"

Edited by erranta

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  • 277 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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