Wednesday, June 23, 2010
Inflation and House Price
How Does Inflation Affect House Prices?
When inflation gets to the point that the general public can no longer afford to buy a house or anything else they need to survive, then the housing prices start to come down. As inflation affects lives and people need to sell their homes, they will be forced to sell for less than it was previously worth. As more homes are put on the market, the competition for the buyer goes up and the prices are reduced. Since there are not as many buyers who can afford to buy a reduced-price house during an inflationary period, the housing market slows down quite a bit. As inflation increases and forces the prices of real estate down, even investors are hesitant to buy. This is because it takes too long to sell the homes.
Posted by simon68 @ 09:52 AM (2672 views)
12 thoughts on “Inflation and House Price”
Add a comment
- Your email address is required so we can verify that the comment is genuine. It will not be posted anywhere on the site, will be stored confidentially by us and never given out to any third party.
- Please note that any viewpoints published here as comments are user´s views and not the views of HousePriceCrash.co.uk.
- Please adhere to the Guidelines
simon68 says:
In equity investment the share price needs to be supported by earnings growth; hence price/earnings ratio is common used on valuable whether the share price is cheap or expensive.
Similar to this is properties price which need to be supported by wage growth; do you think there will be huge growth in coming years (if there is growth at all)?
bluebeach says:
I believe you enjoy reading your own comments Simon
simon68 says:
To: bluebeach
You are the first visitor here today.
bluebeach says:
Simon….. what’s your background if you don’t mind me asking?
simon68 says:
What do you want to know………….my educational/professional background or ethnicity?
bluebeach says:
Professional……. and what side of the fence in property terms…..
simon68 says:
To: bluebeach
I am not an estate agent, not a chartered surveyor, not academic, not economist and not journalist. I’ve got accounting certification in the United States. I am bearish on UK property at least for the next 10 years. I’ve got a pay job here in UK but the rental income, interests and dividends received on my investments are several multiples of my annual pay.
uncle tom says:
“In equity investment the share price needs to be supported by earnings growth; hence price/earnings ratio is common used on valuable whether the share price is cheap or expensive.”
– The share price needs to be supported by earnings, or the expectation of future earnings; but there is no necessity for earnings growth, other than to compensate foe inflation.
“Similar to this is properties price which need to be supported by wage growth;”
– Property price is broadly (but not exactly) proportionate to wages, but again, there is no need for wage growth, other than to compensate for inflation.
“do you think there will be huge growth in coming years (if there is growth at all)?”
– One of the great current misconceptions (I believe) is the notion that per capita economic growth is somehow god-given, and will carry on as it has in past decades.
I am convinced that the core engine of economic growth – the ability, through technologies, to achieve more for the same amount of human effort – has been quite rapidly slowing over the last decade; and that the increase in the number of retirees, coupled to incresed costs of hitherto cheap imported goods; will actually push the trend slightly negative for a few years, before settling at close to zero.
simon68 says:
I wonder how the mortgage borrowers in UK can pay off their mortgage loan without wage growth. Perhaps the loans are meant to be never repaid!
“An interest-only mortgage offers a cheaper way to purchase a property than with a capital repayment mortgage, because borrowers are only paying off only the interest and not the capital. Interest-only mortgages have been the elephant in the room for the UK property market for some time. As the property market continued to boom from 2000 to 2007, the percentage of borrowers taking out interest-only mortgages steadily climbed. By 2007, 33% of mortgages being taken out were interest-only, CML statistics show, and the vast majority have no repayment plan.â€
uncle tom says:
“I wonder how the mortgage borrowers in UK can pay off their mortgage loan without wage growth. Perhaps the loans are meant to be never repaid!”
There is no repayment mechanism for many mortgages, other than the slow erosion due to inflation. Many of the people who have IR only mortgages are also without any form of pension provision..
It should also be noted that the BOMAD phenomenon, which enables many current FTB’s to get started; is likely to weaken significantly over the next few years, as the parents who are being tapped for funds have increasing amounts of unpaid equity to worry about themselves. Parents born after 1958 are generally much less flush with cash, and much more heavily indebted, than those born before..
mark wadsworth says:
Uncle Tom – nice bit of doom’n’gloom there. In any event, the UK is plenty rich enough, and if less income of young people/productive sector were sucked up by overly large state and the Home-Owner-ists (who are two heads of the same monster), then we’d all be just dandy.
simon68 says:
Warren Buffet’s 10 Rules for Getting Rich
Reinvest your profits.
Be willing to be different.
Never suck your thumb.
Spell out the deal before you start.
Watch small expenses.
Limit what you borrow. “Living on credit cards and loans won’t make you rich,” writes Schroeder. Sure, leverage can get you into a home or a new car, but too much debt is one of the biggest drags on your financial well-being.