Nationwide - July - 1.7% YOY -8.1%

Generali

hotairmail wrote: »

(I've just noticed this thread - this post may be best here)

Hot on the heals of the Nationwide House Price Index for July 2008, I've updated the homeowner wealth index analysis.

If you've borrowed or are planning to borrow to buy a property, you really need to look at this. The impact of house price falls on people's equity or 'homeowner wealth' is startling....

http://diaryofapropertybear.blogspot...july-2008.html

For instance for the typical buy to let portfolio with a loan to value of 57% according to ARLA, around half the equity will be wiped out in real terms over the next 12 months at the current rate of house price declines, according to the Nationwide Index.

It would be 16% in real terms with inflation at 5% and price falls of 12%. The calculation is -17/105 not -12-5.

If the equity in a portfolio is 43% and the value of the portfolio drops by 12%, the equity remaining is 31%. If inflation is running at 5% (as you seem to infer) then the buying power of that 31% is reduced to 30% of the value of the original portfolio.

By coincidence, that would be a reduction in the equity of the portfolio of 30%.

In the piece you seem to get your real and nominal calculations mixed up. If inflation is 5% and houses drop by 12% it still means that a £100k house has dropped in price by £12k not £17k. It's just that what would have bought a certain quantity of goods a year ago for £100k would now cost you £105k.

hotairmail

Generali wrote: »

It would be 16% in real terms with inflation at 5% and price falls of 12%. The calculation is -17/105 not -12-5.

If the equity in a portfolio is 43% and the value of the portfolio drops by 12%, the equity remaining is 31%. If inflation is running at 5% (as you seem to infer) then the buying power of that 31% is reduced to 30% of the value of the original portfolio.

By coincidence, that would be a reduction in the equity of the portfolio of 30%.

In the piece you seem to get your real and nominal calculations mixed up. If inflation is 5% and houses drop by 12% it still means that a £100k house has dropped in price by £12k not £17k. It's just that what would have bought a certain quantity of goods a year ago for £100k would now cost you £105k.

Sorry you are getting confused - it was because there were two 17%'s. On the first you are quite right, I had a rounding error and have corrected. The real decline in house prices should read 16% using the following approx.

100% less 12% gives 88%.

88% reduced in value by the rate of inflation of 4.6% (source ONS) gives 4%.

12% plus 4% gives 16%


The other 17% refers to an annualised rate of decline based on the latest quarter on quarter numbers. The number is actually 17.4% if you refer to the full table.

Also from the table you can see I was using 60% ltv.

17.4% house price decline divided by 40% equity gives 44% nominal decline in equity. Then you need to you adjust for inflation (RPI 4.6% according to ONS) to get the total value of the equity disappearing.

No. It's not spam. Thankyou for taking your time.

Hope it helps people to make the right choices.

poppy10_2

Too many numbers! My brain is crying

hotairmail

poppy10 wrote: »

Too many numbers! My brain is crying

:rotfl: I wandered about that. Did you mean on the blog or in the response to the other post?

m00m00

people don't need to think of numbers, only signs

and the only sign that matters at the moment is the following

HPI = -

as long as that sign is in front of the numbers, then housing is a losing bet for 'investment' not necessarily for a home.

hotairmail

Sorry duplicate post

WTF?_2

hotairmail wrote: »

Based on the Nationwide House Price Index, I've done an analysis here to see the effect of house price falls on property owners' equity.

The effect of leverage is startling.

http://diaryofapropertybear.blogspot.com/2008/07/homeowner-wealth-index-july-2008.html

Hope it's of use.

Leverage of course works both ways but for most people that won't be an issue until they fall into negative equity.

At that point they have to pray that they don't lose their income stream or they are in very big financial trouble.

The real squeeze will be on people who bought since late 2005 and people who maxed out on Mortgage Equity Withdrawal.

Retailers are going to be quaking at the destruction of perceived 'wealth' too as it means that 'shopping as a leisure pursuit' is going to be very seriously curtailed. Can't say I'll miss that nauseating trend of recent times going away.

napoleon

We're all doomed