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Graph On The Homepage

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You mean this:

homepage.png

The actual data can be downloaded here: http://www.nationwide.co.uk/hpi/historical.htm

The red line is the trend line, I would say it goes up due to house holds being two earners, lower interest rates on average in later years (so people can borrow more) and more disposable income compared to previous decades.

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The red line curves because it increases at a rate of 3% per annum, meaning it exponentially increases and is meant to represent long-term wage inflation.

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The red line curves because it increases at a rate of 3% per annum, meaning it exponentially increases and is meant to represent long-term wage inflation.

Since the chart shows real prices, the red line would have to increase at the rate at which house price rices outstripped reported inflation, annualised over the period shown.

Edited by pppeter

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Why does the line curve upwards?

Like Johnny B says it is meant to represent the long term trend in house prices based on wage inflation of about 2.8% per annum. This is an exponential trend just like compound interest. People's salaries will go up each year (in the long run) at an ever increasing rate in absolute terms.

So if your salary is £20k this year, they think it will increase by 2.8% (£560) to £20,560 next year and by 2.8% (£575) to £21,135 the year after that and so on. After 20 years your salary would be £34,745, after 50 years £79,558 and, if Gordon has his way, your final salary after 100 years of hard labour will be £316,476. Don't get excited though, if general inflation was also 2.8% you will be no better off than when you started.

Anyway, all that aside I'd ignore the red line if I was you. House prices are based on more than just salary. They are based on mortgage lending. So their long term trend of 2.4-2.8% but doesn't take the lax lending practices into account. If it did that you would see it suddenly jump when 3x salary loans became 4 and 5 etc. And since October 07 you would see the trend line like drop like a stone as the multiples get lower again.

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Like Johnny B says it is meant to represent the long term trend in house prices based on wage inflation of about 2.8% per annum. This is an exponential trend just like compound interest. People's salaries will go up each year (in the long run) at an ever increasing rate in absolute terms.

So if your salary is £20k this year, they think it will increase by 2.8% (£560) to £20,560 next year and by 2.8% (£575) to £21,135 the year after that and so on. After 20 years your salary would be £34,745, after 50 years £79,558 and, if Gordon has his way, your final salary after 100 years of hard labour will be £316,476. Don't get excited though, if general inflation was also 2.8% you will be no better off than when you started.

Anyway, all that aside I'd ignore the red line if I was you. House prices are based on more than just salary. They are based on mortgage lending. So their long term trend of 2.4-2.8% but doesn't take the lax lending practices into account. If it did that you would see it suddenly jump when 3x salary loans became 4 and 5 etc. And since October 07 you would see the trend line like drop like a stone as the multiples get lower again.

It does include wage inflation but it deducts RPI inflation, hence it is real prices. Wages generally go up more than RPI (because RPI is generally under measured). If all things were equal, that line would be completely horizontal as wages theoretically rise with RPI (but we know it doesn't).

Although, I wouldn't pay too much attention to the trend line - but it does demonstrate how overvalued house prices are and how far they *could* fall.

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I apologise for not knowing maths very well but I still don't get this. If it's correct for the red line to curve upwards, doesn't that mean that gradually it will become more and more pronounced and that eventually there will come a time in the future when the line is almost vertical? The way I look at it, it's as if the red line is following the path of a very large semicircle which will just get gradually steeper until it's vertical. If so, does this not mean that a mistake somewhere?

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I apologise for not knowing maths very well but I still don't get this. If it's correct for the red line to curve upwards, doesn't that mean that gradually it will become more and more pronounced and that eventually there will come a time in the future when the line is almost vertical? The way I look at it, it's as if the red line is following the path of a very large semicircle which will just get gradually steeper until it's vertical. If so, does this not mean that a mistake somewhere?

surely it will eventually curve through 360 degress and form a perfect circle

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I apologise for not knowing maths very well but I still don't get this. If it's correct for the red line to curve upwards, doesn't that mean that gradually it will become more and more pronounced and that eventually there will come a time in the future when the line is almost vertical? The way I look at it, it's as if the red line is following the path of a very large semicircle which will just get gradually steeper until it's vertical. If so, does this not mean that a mistake somewhere?

Well done. As an uncluttered newbie, you have marched right to the heart of the matter, avoiding pointless complication.

The answer is that the recent part of the trend line is dragged upwards by the silly bubble we just had.

As prices fall, the trend line will reduce. And that exponential inference will vanish.

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surely it will eventually curve through 360 degress and form a perfect circle

Please don't be silly, I'm far too elderly for that. It obviously won't go into a circle which is why I use the word vertical. It just seems that if the gradual curve is correct, I assume there will be a time when it stops curving gradually and I'd be interested to know why.

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As inflation is under stated/lied about the price of a house or anything else will rise even through inflation has been 'adjusted out'...

Money supply/inflation rises further each year causing everything to rise and rise and rise (exponentially)

Edited by moosetea

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Please don't be silly, I'm far too elderly for that. It obviously won't go into a circle which is why I use the word vertical. It just seems that if the gradual curve is correct, I assume there will be a time when it stops curving gradually and I'd be interested to know why.

sorry - as you say I was being silly

I agree with you that if it does continue curving up then logically it must eventually become vertical

I don't know the answer either

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If you were looking at the chart from an investment perspective then what the trend line does show is that property is a long term investment.

The price cycle guides you when to enter the property market ie preferably at the bottom of the cycle or secondly below the long term trend.

Investment yield and holding costs are not described on the graph and that also needs to be considered in a purchasing desicion.

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sorry - as you say I was being silly

I agree with you that if it does continue curving up then logically it must eventually become vertical

I don't know the answer either

yeah your right that happens and has happened. If its left to rise and rise eventually a near vertitical line occurs. When that happens the economy is loosing lots of value very quickly and governments will knock lots of 0's off and rebase the currency. Recentish examples include France, Turkey, germany, and zimbabwe etc etc....

Edited by moosetea

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sorry - as you say I was being silly

I agree with you that if it does continue curving up then logically it must eventually become vertical

I don't know the answer either

I don't think this graph will ever go vertical('asymptotic' in the jargon):

y=1.03^x

proper mathematician will be able to explain why, but the jist of it is that you may choose any value of x, and compute a corresponding unique value of y ('one to one'). If the graph ever became vertical,

1.there would be a value of x above which no value of y could be calculated.

2.There would be a value of x(at the point the graph became vertical) for which a unique value of y would not exist(since all y above vertical point would fit).

That clearly ain't possible from the formula.

Asymptotes often occur when a graph has a divisor in the formula, ie:

y=(1.03^x)/(x-3)

for x=3, we have a problem due to division by zero. That will cause asymptotic behaviour.

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sorry - as you say I was being silly

I agree with you that if it does continue curving up then logically it must eventually become vertical

I don't know the answer either

No :rolleyes::rolleyes:

If it's 2.8% a year, then that's what it will stay

A vertical line would mean a value increasing in zero time - which obviously cannot happen in the scenario outlined. It gets steeper, but by the time £1000 in the future is worth £1 in today's money, in fact the chart looks EXACTLY THE SAME.

See below (assuming I can upload the attachments)

First 1 is 1990 to the year 2308 and YES! it looks very steep. (based on 2.8% per year, 1990 = £60,000)

But 2nd one is 2290 -2308, i.e. similar to the front page chart today, this is nothing more than a zooming in on chart 1.

The chart today would look super-steep if it had prices from 1690 as the first data point. The curve (I believe :unsure: ) is known as self-similar, i.e. one bit looks the same as another in shape.

prices.JPG

prices2.JPG

post-13257-1220769957_thumb.jpg

post-13257-1220769966_thumb.jpg

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Very good Primitive. I hope you don't mind, I'm going to borrow those charts for a discussion we have been having about the Chris Martenson series of vidoes that has been taking place over at GEI. Martenson tries to scare the sh*t out of everyone because everything is 'about to go vertical' - resources usage, credit, dollar issuance etc etc

Go for it. Was only 2 columns in Excel! Hardly copyright material ;)

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It curves upwards because the relationship is exponential. Eventually it will go almost vertical but not quite.

The 2.4% growth is arrived at by the relationship

P = P0*(1+n)^x.

i.e. the price now is equal to the price x years ago (P0) times rate of growth (n) to the power x.

To find n you plot:

log P = logP0 + xlog(1+n).

So if you plot log price against time the gradient is the rate of growth.

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2.8%?

I wonder if anyone has an average wage rise figure for the same period.

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2.8%?

I wonder if anyone has an average wage rise figure for the same period.

Don't forget the graph is inflation adjusted. If you assume that payrises are broadly in line with inflation then you would expect the graph to outstrip wages. All the graph shows is that there are periodic increases and decreases in disposable income, most likely corresponding to expansions and contractions in credit. But that overall, over the past 30 years or so disposable income has increased, which it has due to massive deflation in food and consumer electronics.

Edited by frozen_out

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Don't forget the graph is inflation adjusted. If you assume that payrises are broadly in line with inflation then you would expect the graph to outstrip wages. All the graph shows is that there are periodic increases and decreases in disposable income, most likely corresponding to expansions and contractions in credit. But that overall, over the past 30 years or so disposable income has increased, which it has due to massive deflation in food and consumer electronics.

Thank you, but which part of the graph is adjusted for inflation, I thought it represented the price of the average home?

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The nationwide data on the front page shows REAL house prices (not nominal).

Real house prices means inflation adjusted. Nominal house prices would show you the price in the currency at the time.

As an example, if we had been observing the price of an average house in the UK over the last year... we would see that only the very last value on the chart matches our observation of the average house price.

However, as we look back through time on the chart we would notice that the chart values for historic data are different to what we actually observed the average house price to be. That's because they exclude inflation of the currency by showing historic prices in today's currency value.

Example:

Price we record at the time------RPI Inflation---- Chart would show

Yr1: £50k-----------------------------10%----------------- £60.5k

Yr2: £55k-----------------------------10%----------------- £60.5k

Yr3: £60.5k---------------------------10%----------------- £60.5k

So for example the front page chart shows that avg house prices in around 1996 were at their minimum of £73k. If you actually went back to 1996 you would find that the average house only cost £51k in the money of the time.

Edited to make table more readable

Edited by Buy Toilet

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The line is drawn by a VI. Surely there is a risk that it will be drawn in a way that makes houses look like bargains as soon as possible (and if so, surely the graph will be inappropriate for the hpc.co.uk front page?) Halifax and Nationwide have proud histories of 'smoothing' the numbers. I don't think the line has been redrawn since the crash began.

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The nationwide data on the front page shows REAL house prices (not nominal).

Real house prices means inflation adjusted. Nominal house prices would show you the price in the currency at the time.

As an example, if we had been observing the price of an average house in the UK over the last year... we would see that only the very last value on the chart matches our observation of the average house price.

However, as we look back through time on the chart we would notice that the chart values for historic data are different to what we actually observed the average house price to be. That's because they exclude inflation of the currency by showing historic prices in today's currency value.

Example:

Price we record at the time RPI Inflation Chart would show

Yr1: £50k 10% £60.5k

Yr2: £55k 10% £60.5k

Yr3: £60.5k 10% £60.5k

So for example the front page chart shows that avg house prices in around 1996 were at their minimum of £73k. If you actually went back to 1996 you would find that the average house only cost £51k in the money of the time.

OK, so what does the trend line represent? nothing.

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  • 395 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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