The Real House Price Graph On The Home Page

[LetsGetReadyToTumble]

With reference to the real house price graph, filled in with blue colour, on the home page.

Should the red average line move down as house prices drop?

I believe some people take this as a reference for how far prices will drop, or how much overshoot there is passed this line.

If this red line is a moving average, then with reducing prices, I'm thinking the line will move downwards.

cheers

[zebbedee]

With reference to the real house price graph, filled in with blue colour, on the home page.

Should the red average line move down as house prices drop?

I believe some people take this as a reference for how far prices will drop, or how much overshoot there is passed this line.

If this red line is a moving average, then with reducing prices, I'm thinking the line will move downwards.

cheers

I thought it was the long term trend and as such shouldn't move because although prices are changing the trend shouldn't, a very large increase would be expected to have a correspondingly large fall over the long term.

[Pipsqueak]

What I've noticed about it is that the red line is not dead straight and has a slight upward curve. How can this be right? If it carries on curving like that eventually it will go vertical and then turn back on itself and create a big circle. How can this be?

[expatowner]

Perhaps its showing that in the long term, properties increase in price at a steady rate.

What would be interesting would be include the rate of inflation on this graph as well.

[zebbedee]

What I've noticed about it is that the red line is not dead straight and has a slight upward curve. How can this be right? If it carries on curving like that eventually it will go vertical and then turn back on itself and create a big circle. How can this be?

As a long term trend it is approximately inflation and there is not net gain in the worth of the asset and represents a long term exponential increase along with everything else.

[Namaste]

Yes the trend should go down. If you look at the up to date graph here: http://www.nationwide.co.uk/hpi/historical/June_2008.pdf you'll see the current trend is actually 2.8%, not the 2.4% stated on the homepage of HPC. So it went up during the recent couple of years of HP increases, and it should go down as they decrease.

[Telometer]

It would be very helpful to see the home page graph plotted on a log scale. Might bring a sense of reality.

[AteMoose]

What I've noticed about it is that the red line is not dead straight and has a slight upward curve. How can this be right? If it carries on curving like that eventually it will go vertical and then turn back on itself and create a big circle. How can this be?

Inflation/Money supply in a Fiat economy means that the price of things always go up exponentially Year on Year. I.e a 2% pay rise every year gets bigger and bigger each year. The Death of the dollar/Fiat might stop this but its like swimming upstream against the ever growing flow of money coming from the printing presses....

Having said that the frount page graph is 'adjusted for inflation' , but unfortunately money supply is a bigger number than inflation

Edited July 3, 2008 by moosetea

[thedebtisreal]

Inflation/Money supply in a Fiat economy means that the price of things always go up exponentially Year on Year. I.e a 2% pay rise every year gets bigger and bigger each year. The Death of the dollar/Fiat might stop this but its like swimming upstream against the ever growing flow of money coming from the printing presses....

Having said that the frount page graph is 'adjusted for inflation' , but unfortunately money supply is a bigger number than inflation

To make the graph meaningful you should really adjust it for wage inflation (not consumer prices which is generally lower. This gives people the false impression that houses rise above inflation. They don't.), You'll find house prices always bounce around a mid point (between 2-3 times income regardless of the interest rate/inflation). Right now, the relationship has never been so distorted in the history of our economy. To bring prices into line, we need either a very large crash or very large wage inflation, or perhaps a medium amount of both.

[wanttomoveon]

I've always thought the red line was too high anyway. Makes it look like the crash is nearly over! I thought the volume of blue below the line should equal the volume of blue above the line, mathematically? Or something.

[IMHAL]

Yes the trend should go down. If you look at the up to date graph here: http://www.nationwide.co.uk/hpi/historical/June_2008.pdf you'll see the current trend is actually 2.8%, not the 2.4% stated on the homepage of HPC. So it went up during the recent couple of years of HP increases, and it should go down as they decrease.

I think you'll find that the logic in moving it from 2.4 to 2.8 was to make the current houe prices not seem too far from the trand - its another manipulation to sooth the masses.

HAL

[chevin]

What I've noticed about it is that the red line is not dead straight and has a slight upward curve. How can this be right? If it carries on curving like that eventually it will go vertical and then turn back on itself and create a big circle. How can this be?

such a curve never reaches vertical. It would forever get closer to it.

[quantinghome]

I think you'll find that the logic in moving it from 2.4 to 2.8 was to make the current houe prices not seem too far from the trand - its another manipulation to sooth the masses.

HAL

It's not manipulation. The red line is simply a best-fit exponential curve, calculated by clear and well-understood statistical methods. New data above the best fit line will increase the growth rate, which is what has happened.

Note that this means the growth rate of the red line will continue to increase until house prices drop below the line, at which point they'll start to pull the line down. The growth rate will continue to drop even when house prices have bottomed out and start rising again, until house prices once again cross the red line. This is a statistical quirk, not manipulation. However, because of this quirk the red line is only accurate when measured over a whole number of boom-bust cycles.

[the primitive]

What I've noticed about it is that the red line is not dead straight and has a slight upward curve. How can this be right? If it carries on curving like that eventually it will go vertical and then turn back on itself and create a big circle. How can this be?

Double post sorry

Edited July 3, 2008 by the primitive

[the primitive]

What I've noticed about it is that the red line is not dead straight and has a slight upward curve. How can this be right? If it carries on curving like that eventually it will go vertical and then turn back on itself and create a big circle. How can this be?

No it won't!!! It's called an exponential curve. Put simply, the trend price increases by a constant perecentage every year. It can't go back on itself.

If it was not curved, in 1000 years time the prices would be £5 million but still going up by only £2K a year (or whatever) which would be nonsense.

Have you got a job? Do you get a fixed cash pay rise every year or a percentage?! Say you got a £500 rise. I imagine if you were still getting only £500 in 20 years you might not be too chuffed.

Or put it another way, were people in your job getting £500 rises 40 years ago?

Did you not ever wonder why your bank charged you a percentage interest on your mortgage and not a flat fee per year?

[Principia]

What I've noticed about it is that the red line is not dead straight and has a slight upward curve. How can this be right? If it carries on curving like that eventually it will go vertical and then turn back on itself and create a big circle. How can this be?

As explained by the various other posters, the line is exponential etc.

The perception that it is heading towards the vertical is purely down to the scaling of the graph. If, say, in years to come, the trend line reaches £1,000,000, then you would need to re-scale the y-axis of the graph to fit this number on. In doing so, the line will be "flattened" out on the page. Even at such a high figure, the shape of the trend line would look remarkably similar to what it looks like now.

You can demonstrate this yourself, if you take the data for the first half of the graph - e.g. take data before 1990, and ignore everything after that. When you re-scale the y-axis, the resulting trend will look pretty much the same as the current trend, rather than looking "flatter".

The only way it would "look" vertical is if the rate of change suddenly increased over the period you were monitoring. E.g. if house prices suddenly increased at 100%pa. Even then, the shape of the trend line depends on the "type" of trend used (e.g. linear, power, moving average etc.)