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Realistbear

Treasury Believes House Prices Will Fall In Real Terms This Year

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http://www.telegraph.co.uk/money/main.jhtm...cnsplash113.xml

Budget 2008: An economic storm will hit the UK whatever Alistair Darling says
By Edmund Conway, Economics Editor
Last Updated: 1:00am GMT 13/03/2008
Alistair Darling's claim that Britain is well placed to "weather economic storms" was shattered last night as it emerged that the
Government is expecting a real fall in house prices and a major drop in City salaries in the coming year
.
...../
Peter Spencer, of the Ernst & Young Item Club, said he expected the eventual borrowing total to be even higher. "It is very likely that he will exceed the record £50bn set by Norman Lamont," he said. "His economic forecasts are decidedly optimistic, prone to a much weaker housing market and high street."
The borrowing increase leaves the UK with one of the
biggest budget deficits in the Western world
, at 2.9pc of gross domestic product in 2008/09. The only major country with a bigger shortfall is the US, however, this is after taking into account the $168bn of tax cuts recently announced George Bush.

Here is where I think (best guess) the miracle economy will go this year:

1. House prices down in real terms by AT LEAST 20%

2. "Growth" in negative figures by the 3rd Q (+1.25% 1st Q, 0.5% 2nd Q, -1.0% 3rd Q, -1.75% 4th Q

3. Sterling down to 1.80 vs. the US$ and 1.10 vs. the Euro

4. CPI 3.5% by the end of the 2nd Q (Real inflation somewhere north of 6%)

5. Unemployment 6% by the end of the 1st H

Al Greenspan said last year the the miracle ecnomy (Brown's) was worst placed among the G7 to weather the coming economic storm because of over reliance on the one sector that did so well in the bubble years: financial services and the housing bubble. IMO Al is correct and Brown is wrong. Of course, Brown doesn't really believe his own propaganda--its politics.

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Um, I always get real and nominal terms wrong - real is if a house is 100K and it falls 20% then it is worth only 80K?

A 20% real fall by the end of the year would be fantastic but I can't see it happening on current drops that I am seeing in my area - i.e. sod all!

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Um, I always get real and nominal terms wrong - real is if a house is 100K and it falls 20% then it is worth only 80K?

A 20% real fall by the end of the year would be fantastic but I can't see it happening on current drops that I am seeing in my area - i.e. sod all!

Nope. Nominal would be 100K turning to 80K.

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OK, if a 100K house falls 20% in real terms by the end of the year how much is that house worth?

100K. If you sold it the 100K would buy you less things than it would have done before the "real" fall.

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Guest X-QUORK

Comment withdrawn having now read the link properly. Apologies to RB.

Edited by X-QUORK

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That is no good. We want nominal not real falls then. What's the point of STRing if all we are going to get is nominal falls! I wish to complain to someone.

No, I think nominal is good enough.

That way even if your capital is not keeping up with inflation, it is doing better than house prices.

Nominal fall is 100k now only being worth 80k

real fall is 100k in cash is only worth 95k, but you can still buy a house for 100k.

nominal plus real is 100k now being worth 80k, but 80k only buys what 75k bought last year.

Please let me know if I have worked this out wrong. :)

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OK, if a 100K house falls 20% in real terms by the end of the year how much is that house worth?

Nominal - on paper, named figures, price your house goes up or down.

Real - factors in inflation, e.g. if inflation goes up 3% (lol) and your house was worth 100k and a year later it is worth 100k you have still lost 3% in real terms as your house hasn't rose in line with inflation - as the poster above says, you can buy less with your '100k'.

D

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That is no good. We want nominal not real falls then. What's the point of STRing if all we are going to get is nominal falls! I wish to complain to someone.

Indeed, I think it may be wishful thinking that the falls will only be real. But then you never know what the response from the government will be to nominal falls. That's the bit that excites me. :lol:

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nominal = price before inflation.

real = price with inflation taken into account.

So.

100k with nominal fall of 20% = 80k.

100k with real fall = 77k. if inflation is 3%.

I dont think we will be even close to seeing either real or nominal falls in the 20% bracket. At least not across all property classes (quite easy in new build city centre flats).

3 bed, decent family houses will be far stickier. I think between 5-10% falls on this property class this year.

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I haven't got a clue what you are talkign about. Right, back to developing my hyperdrive engine.

the nominal price is just the price listed for sale.

so if the advert is house for sale 200k pounds, that is the nominal price.

it is important because mortgages, contracts etc. all deal in nominal numbers. so negative equity is effected by the nominal price.

the real price is the value of that house.

so if you could trade your city center flat for 5 oranges last year, but only 4 oranges this year, then you hae had a loss in real value.

the real value is important to keep track of in your holdings to make sure that the value of your investments is actually growing in real world terms (goods and services etc), not just in paper numbers.

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nominal = price before inflation.

real = price with inflation taken into account.

So.

100k with nominal fall of 20% = 80k.

100k with real fall = 77k. if inflation is 3%.

I dont think we will be even close to seeing either real or nominal falls in the 20% bracket. At least not across all property classes (quite easy in new build city centre flats).

3 bed, decent family houses will be far stickier. I think between 5-10% falls on this property class this year.

100K * 1.03 = 103K * 0.8 = 82.4K surely?

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The VIs take real prices changes and extrapolate them into nominal prices which are then mix adjusted with seasonal factors which are weighted before finally arriving at a figure that best suits the current market situation.

Thus, in mathematical terms: R+ P/Pie squared - P+N/100% = S

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the nominal price is just the price listed for sale.

so if the advert is house for sale 200k pounds, that is the nominal price.

it is important because mortgages, contracts etc. all deal in nominal numbers. so negative equity is effected by the nominal price.

the real price is the value of that house.

so if you could trade your city center flat for 5 oranges last year, but only 4 oranges this year, then you hae had a loss in real value.

the real value is important to keep track of in your holdings to make sure that the value of your investments is actually growing in real world terms (goods and services etc), not just in paper numbers.

What????????????

If you own a house worth 100k and it goes up in price over a year to 105K you have seen a nominal price rise of 5%.

If, however, during that year inflation was 5% (this assumes everything goes up, wages and prices in sync) then the real rise in price of the house is 0%.

If a house falls in value from 100k to 90k you have a nominal fall of 10%.

If during that year there is inflation of 5% then you have a real fall of ((105-90)/105) x 100 = 14.3%.

So, given we have positive inflation (apart from wages!) real falls will be bigger than nominal falls but nominal falls will do.

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Phew, I thought I was the only one who had to keep googling 'nominal and real' each time I saw it mentioned here. (There are websites devoted to explaining it you know). But judging from the differing opinions I am not the only one :huh:

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nominal = price before inflation.

real = price with inflation taken into account.

So.

100k with nominal fall of 20% = 80k.

100k with real fall = 77k. if inflation is 3%.

I dont think we will be even close to seeing either real or nominal falls in the 20% bracket. At least not across all property classes (quite easy in new build city centre flats).

3 bed, decent family houses will be far stickier. I think between 5-10% falls on this property class this year.

That makes sense to me. And it's consistent with the evidence from the 1989/95 crash, where the sharpest annual decline happened early on. According to the Nationwide figures the average property was £61.5k in Q4 1989, and fell to £54.9k in Q4 1990, a nominal drop of 10.7% across all types of property.

As an STR's I'd be delighted with bigger, quicker falls, but I'm not holding my breath.

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I haven't got a clue what you are talkign about. Right, back to developing my hyperdrive engine.

TMT - You have over 4,000 posts on this forum and you don't know the difference between real and nominal falls? Have you ever wondered why there are so many posts about inflation on this forum?

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What????????????

If you own a house worth 100k and it goes up in price over a year to 105K you have seen a nominal price rise of 5%.

If, however, during that year inflation was 5% (this assumes everything goes up, wages and prices in sync) then the real rise in price of the house is 0%.

If a house falls in value from 100k to 90k you have a nominal fall of 10%.

If during that year there is inflation of 5% then you have a real fall of ((105-90)/105) x 100 = 14.3%.

So, given we have positive inflation (apart from wages!) real falls will be bigger than nominal falls but nominal falls will do.

And, here is the real kicker. Brown removed indexation allowance.

Say you bought a second home for £100k ten years ago. Over those 10 years inflation doubles the price of everything. But due to poor house market performance the house only goes up to £150k. If you sold for £150k you still have to pay capital gains tax on the house even though in real terms the house has gone down in value.

Now that is a stelth tax and half.

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Phew, I thought I was the only one who had to keep googling 'nominal and real' each time I saw it mentioned here. (There are websites devoted to explaining it you know). But judging from the differing opinions I am not the only one :huh:

The difference is simple.....if your home stays at £200k for 3 years NOMINAL price is unchanged but REAL (aka inflation-adjusted)price has fallen in line with inflation rate

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  • 297 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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