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AteMoose

Saving Rate Against House Prices

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I was thinking about inflation and the best way of seeing how much money people had in there pocket after everything else. Found the government stats on weekly income left before housing, and came accross the saving stats. Kind of makes sence, when people have money left at the end of the mounth they either spend it or save it. The more money they have left after everything else goes into the bank and is reflected as a percentage of income saved...

Nationwide House prices against % of income saved, with an 8 quarter moving average line, HP have been divided by 10000, spooky aint it :P

My observations:

1) When saving increases house prices tend to come down, in 2000/2001, it looked like this was about to happen as savings spiked up, but something happened and stopped people saving.....

2) In the past when house prices went up people also saved, this is nolonger true

3) Saving has been low for the past couple of years and it is still historically low

Comments appreciated :P

SavingsAgainstNationwide.PNG

post-552-1132668377_thumb.jpg

Edited by moosetea

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I think that people generally act the same as current running through a copper wire.

They always take the easiest route 'available'.

Take your average person (lets call him Joe), his kitchen is knackered, it's still usable but the tiles are coming off the walls and the unit doors are falling off.

His possibilities are;

1) Live with existing kitchen (maybe patch up the tiles).

2) Save money to buy kitchen and install,

3) Get a loan to cover buying and installing a new kitchen.

Numbers 1 and 2, (IMO) would have been the norm in mid/late 70's, the economy was in a poor state, banks would not lend money willy nilly and to some extent there was a stigma attached to loans. So Joe would have little option but to save the money to get a kitchen. Even then he probably would have had more urgent things to spend his money on than a new kitchen and therefore may decide to live with the existing one.

Number 3, (again IMO) would happen now, IR's are low (IMO artificially) so banks will lend pretty much without question. Also, (most banks) use heavy direct marketing and TV adverts to push loans for home improvements and luxury items, so they are very available and certainly don't have the stigma attached to them that they used to.

My point is that the easiest route to what he 'wants' and his financial priorities have changed dramatically over the last 25 years. The average Joe on the street probably doesn't even follow BOE interest rates, let alone know what rate they pay on their loan. If the money is available then he will more than likely take it, IMO the average Joe does not think about how he will afford the repayments, or for how long he will have to make those repayments.

When banks are forced to start tightening up on lending criteria and people are forced to save to get what they need (nevermind what they want) then the Great British public will start saving and/or cutting back again.

I'm unsure what will force the banks to tighten up lending criteria. I suppose it will be increases in people defaulting on loans, this trend of people going to court to get their loans written off should also be a factor.

I think HP are the same as the kitchen loan (just bigger), over the last few years, saving for a house has ment you have missed the boat as HPI has outstripped savings and mortgage loans are very easy to come by (just think 10 years ago, could you get a 100% mortgage from a high street bank?). When (OK, if) mortgages are harder to comeby people will have to save to move up the ladder and the chances are they will be saving for something more pressing than a bigger house (like the repayments on an existing house).

Edited by laughing_goat

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This is obviously VI and very funny it is too when it lists HP at the end :lol: but it does hint at the savings required to get on the bottom of the ladder comparing 2001 with 2011 and how disastrous this is for the population and economy.

Average HP in London £351,000 in 2011 anyone? :blink:

http://journalist.egg.com/aboutegg/newsrel...ase/?id=2909648

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My observations:

1) When saving increases house prices tend to come down, in 2000/2001, it looked like this was about to happen as savings spiked up, but something happened and stopped people saving.....

2) In the past when house prices went up people also saved, this is nolonger true

3) Saving has been low for the past couple of years and it is still historically low

Comments appreciated :P

Great effort. A clear relationship.

However, you could say there is still leeway to go down even further! Unprecedented in recent history yes, but still possible! I think the US has managed to slip into negative territory recently - this country is still at roughly 5%. Having said that, what will this mean in 20/25 years time when the recent mortgages have been paid off, but they haven't got any savings and might not get a lot from their pensions?

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Great effort. A clear relationship.

However, you could say there is still leeway to go down even further! Unprecedented in recent history yes, but still possible! I think the US has managed to slip into negative territory recently - this country is still at roughly 5%. Having said that, what will this mean in 20/25 years time when the recent mortgages have been paid off, but they haven't got any savings and might not get a lot from their pensions?

They will downsize, and live off the proceeds of downsizing. Expect large numbers of family homes coming on to the market and therefore the price to drop.

BTW forget 20/25 years. This will be happening over the next 5-10 years as the baby boomers retire. Boomer born in 1946 is 60 next year!

frugalista

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lookin at the graphs again, buy a property when the rest of the population in saving like mad (say above 8% saving rate), dont buy when the population isnt saving....

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  • 333 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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