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bear.getting.old

Nationwide BS graph "real house prices" - flawed?

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http://www.housepricecrash.co.uk/indices-nationwide-national-inflation.php

The red line is the trend line at 2.9% p.a. yes? I have a friend who is heavily into BTL. His view is that houses are still completely a bargain after looking at that graph, because we are below the red line. It was me who told him to sell up and get out, but anyway...

These are supposed to be the prices adjusted for inflation but "Real" House Prices. Is this realistic? Inflation hasn't been that high.

Eg 2009  Q1  House Price £149,709     "Real House Price" £191,207    Trend £180,092

How would they arrive at the "real" 191,207 figure? It makes the 2017 Q2 £209,971 "real" price look ok. I mean its only their red line that makes it look that todays prices are justified!

I'm a bit confused and puzzled and I apologise in advance if I've missed something obvious

Edited by bear.getting.old

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The whole analysis is total nonsense.

The 2.9% (I'll accept your number without checking it) is simply a crass 'fit' to the data. You could fit the same data with a linear fit, or a fourth order polynomial, or a picture of an elephant; whatever you damn well choose can be employed.

aabac18ed5d33e2d2123a03b2d731e32_w500_h3

You could have found a similar growth trend in Japan until about 1990.

07-03-27_japan_real_estate_prices.jpg

Source

Anyone trying to establish a sensible price to buy who employs a comparison to the exponential (technical sense intended) growth rate that best fits ups and downs of the Nationwide HPI (when expressed in real terms) wants their head examined. Not surprised to discover you attributing this piece of genius to some mysterious BTL investor who you just happen to know (and is, presumably, actually you).

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Thanks for the reply but I think you need to know me a bit better. I just want a UK house at fair value. I've waited for 15 years at much personal cost, I'm not about to buy one now then watch it crash! I'm sure all of us know at least a few people through various means who are into BTL. Once I got chatting on a plane next to one of the nicest guys I've ever sat next to and it turned out he was heavy into his BTL. Major lip biting from me. I was just interested to get into the mind of the BTL man so I asked a lot of questions. He was leveraged to the max. I suspect the tax changes (which he appeared not to have heard of) will wipe him and his wife out. The 'friend' in question has about 20 or more houses and flips them between his residence or BTL house. He is quite an intelligent bloke  and works but very irritating at the same time and especially seems to act superior just because of his BTL status. I wish he would contribute something more productive to the economy with his money than BTL.

I ended up looking at the nationwide figures today while comparing them to the land registry ones, this is where I started questioning it.

 

Edited by bear.getting.old

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As Bland Unsight has eloquently put, both in words and in pictures, the red line itself does not indicate whether prices are underpriced or overpriced, but rather shows the trend and is by nature backwards looking. If prices grow fast, this will pull the line up, but this still only notes what prices were, not where they will be.

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Surely a real trend line should fall a bit during periods of falling values, at no point has this line ever done this on the graph. This is made even more misleading after adjustment for inflation.

LR figures show the average UK house at around 200K today up from 50K in 1995. 50k that's £88,209 in 2016 money at CPI not RPI, this is why I think this graph is flawed and prices overvalued.

Edited by bear.getting.old

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We have a thread on this graph every few years on this site.  I still don't understand why it's on the front page as the line is nonsense.

It's a trend line not a fit to the data.  Someone somewhere has randomly at some point in time decided that 2.9% per annum is the 'right' value by which real prices should be increasing each year ie. house price increase above inflation.  So this is the trend it shows.  It doesn't respond to any change in the data unless someone adjusts their 2.9% assumption and replots it.  

If you wanted to plot something that changed depending on what house prices actually do you'd have to have a model to fit.  Most realistic suggestion I've seen so far is Bland Unsights elephant in the room model. 

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2 hours ago, bear.getting.old said:

Once I got chatting on a plane next to one of the nicest guys I've ever sat next to and it turned out he was heavy into his BTL.

Totally implausible. Pics or it didn't happen.

I do like this phrase you've now employed twice, with a subtle variation between instances, about being heavy or heavily into BTL. Do these individuals have a large number of properties or is it that they are aggressively emotionally engaged with a smaller leveraged portfolio?

Regarding how we all know some Fergus Wilson manqué, with only about 30,000 of these over-leveraged 10+ portfolio cretins knocking around I think that the numbers work the other way; most of us have never encountered any of them.

(I do also like the fact that you have a mental category of "nicest guys I've sat next to". I'm going to have to take an inventory of my own life and see who wins that category when I think about all the people I've sat next to. Does one only include random encounters? I have some good friends who from time to time I sit next to in the pub, for example. Are they in the running for the top slot or are they barred from competition?)

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The 2.9 percent stat on the HPC site graph is out of date. The latest version in the Nationwide quarterly series has a trend line of 2.6 percent now I believe. This has been falling since 2012ish. The 2.6 percent compounds each year I imagine. 

Edited by rantnrave

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7 hours ago, bear.getting.old said:

http://www.housepricecrash.co.uk/indices-nationwide-national-inflation.php

The red line is the trend line at 2.9% p.a. yes? I have a friend who is heavily into BTL. His view is that houses are still completely a bargain after looking at that graph, because we are below the red line. It was me who told him to sell up and get out, but anyway...

These are supposed to be the prices adjusted for inflation but "Real" House Prices. Is this realistic? Inflation hasn't been that high.

Eg 2009  Q1  House Price £149,709     "Real House Price" £191,207    Trend £180,092

How would they arrive at the "real" 191,207 figure? It makes the 2017 Q2 £209,971 "real" price look ok. I mean its only their red line that makes it look that todays prices are justified!

I'm a bit confused and puzzled and I apologise in advance if I've missed something obvious

That graph is well out of date. I believe you can download a more up-to-date one from Nationwide website. I did a while back and the rate of increase was 2.6%. It might be lower now. We have had this discussion before. It seems the red line is a regression line, a line of closest fit. Of course, the big bubble has caused the line to go upward but as time goes on, the rate comes down. Each point that is added which is below the red line will pull the red line down towards it, since a regression line tries to get as close as possible to all the data points.

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13 hours ago, bear.getting.old said:

http://www.housepricecrash.co.uk/indices-nationwide-national-inflation.php

The red line is the trend line at 2.9% p.a. yes? I have a friend who is heavily into BTL. His view is that houses are still completely a bargain after looking at that graph, because we are below the red line. It was me who told him to sell up and get out, but anyway...

Historic inflation also meant wage inflation, and that has not happened over the past 20 years.  The talk of inflation that is about to happen is in the price of goods.

Maybe someone plot the same graph against wage inflation over the same time ?  To see where we really are, re "affordability".

If I understand correctly inflation is usually the result of too much disposable money available so the price of good goes up as the demand side keeps  buying every time the price up is put up, and price is put up just because they can and/or can't supply any more of the goods anyway (since they are at full manufacture capacity and planning more capacity has a lot of costs).

House Price Increase is in itself exactly this phenomenon.   In order for this to happen the surplus money to pay has to come from somewhere.  In the case recently it has been eyewatering house price loans, then credit cards, now car loans driven by low IR and easy credit.

 

But what we are about to see if the price of goods go up but due to lack of disposable income the demand for those goods will drop this effect curbs further price increases as the goods vendor needs a level of sales to support their manufacture base / fixed costs or they go out of business in debt.

The problem is the lack of "disposable income" to mop up price increases, so people have to start to make choices on what to buy each month.  Or even which creditor to pay.  This assume unemployment stays low, if that changes that an automatic affordability problem.

Edited by Odin

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10 hours ago, Bland Unsight said:

Totally implausible. Pics or it didn't happen.

I do like this phrase you've now employed twice, with a subtle variation between instances, about being heavy or heavily into BTL. Do these individuals have a large number of properties or is it that they are aggressively emotionally engaged with a smaller leveraged portfolio?

Regarding how we all know some Fergus Wilson manqué, with only about 30,000 of these over-leveraged 10+ portfolio cretins knocking around I think that the numbers work the other way; most of us have never encountered any of them.

(I do also like the fact that you have a mental category of "nicest guys I've sat next to". I'm going to have to take an inventory of my own life and see who wins that category when I think about all the people I've sat next to. Does one only include random encounters? I have some good friends who from time to time I sit next to in the pub, for example. Are they in the running for the top slot or are they barred from competition?)

You are a funny chap. Read haha for that. I usually don't take random pics of people on planes. Have you never struck up a conversation with a stranger and got on well? Pub would be included if you have never seen the said person before. Anyway I do have his phone number and must phone him to see if he still has his 'portfolio'! What was surprising about this encounter was that I have such a low opinion of BTL landlords and almost hate them with a passion for what they have done to society and my own problem with unaffordable housing, yet he was a normal person. In his case and perhaps a few others I don't think they quite grasp how much damage they are doing. He will be burned though because each of his houses were financed with a maximum LTV mortgage and each house finances the next one and so on... (hence the heavy bit)

The other friend I have who really is more of an aquaintence really does take the biscuit. He is the ultimate, "I'm rich, you are poor, I'm an landord so screw you" type person. He deserves to be burnt in this next crash. But he might be smart enough to get out.

Back on topic, this graph needs updating then. Yes valuing by average house price and mutliple of average earnings to get the loan also good. So we are agreed then 80K -100K is a sensible realistic price for todays 210K house.

Edited by bear.getting.old

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10 hours ago, bear.getting.old said:

He is the ultimate, "I'm rich, you are poor, I'm an landord so screw you" type person.

For those other LLs with some kind of social conscience, you should always try to walk them through their business model and how it is fundamentally parasitic in nature, whilst increasing the problems with housing they claim to be helping. It's funny to see how they react with discust as the reality of their 'charitable' efforts are exsposed as purely selfish exploitation of their common countrymen. The false self image of status and integrity is shattered for all time as the truth of reality is hard to deny and may continue to burn in the mind for a while. Where the arguments falls back to "I'm not doing anything illegal... blah blah blah it's my pension...", argument concluded (unless they can handle anymore truths). Educate and enlighten.

Edited by DarkHorseWaits-NoMore
typo's and details

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