2004...My Ar*e....Make Your Predictions...

Kenny4315

It's strange really on MSE, 3 years ago I said that house prices where over-valued, I predicted a large correction in the market. Virtually everyone argued against a correction insisting that the market would continue to rise indefinitely. It took a bit longer to correct than I predicted, by some 12 months or so, due to Mr Clown fiddling around, but it has come.

However, unlike some that predict total freefall, this will not happen, once 30 to 35% comes off the peak, then that market ain't going to go down any further. That puts the average at somewhere around the £120k to £128k mark. I don't often get it wrong and I ain't going to be wrong this time either, as usual I'll be backing up my views with hard cash investments and NOT hot air, and I never lose on my investments. :money:

Kenny4315

Here is an illustration, house I bought in 2000 for £140k at start of the year (inc refurb cost). A sensible 5% pa increase in house prices.

2000 140,000
2001 147,000
2002 154,350
2003 162,068
2004 170,171
2005 178,679
2006 187,613
2007 196,994
2008 206,844
2009 217,876
2010 228,045

SOLD September 2007 £324,000

Current difference to 2009 position £106,814, or 32.9%.
Start 2010 difference £95955 or 29.6% (ie normal growth clawing back steep previous rises)

A 50% reduction from peak would take it to £162K below a steady 5% rise pa. houses on a steady rise would be expected to rise a bit more than 5% based on levereage of salary growth based on inflation. ie £1 salary get you £3.5 mortgage insimple terms.

beingjdc

Kenny4315 wrote: »

Here is an illustration, house I bought in 2000 for £140k at start of the year (inc refurb cost). A sensible 5% pa increase in house prices.

5% isn't sensible.

In the long term, if house prices were to continue to go up by double the rate of inflation, one house would eventually be worth more than everything in the entire country that isn't a house, all put together.

That's obviously ridiculous, if you think about it, no?

Kenny4315

Ever heard of double digit inflation ???

For a pay increase of £1000 an extra £3500 can be borrowed, using leverage.

beingjdc

beingjdc wrote: »

5% isn't sensible.

In the long term, if house prices were to continue to go up by double the rate of inflation, one house would eventually be worth more than everything in the entire country that isn't a house, all put together.

That's obviously ridiculous, if you think about it, no?

For example let's say a week's shopping currently costs £100 for a family, and a house costs £200k. That means a house costs the same as 38 and half years' shopping.

If inflation is 2% and the house goes up 5%, then at the end of year one, the house costs £210k, and a week's shopping costs £102. The house costs the same as 39.6 years' shopping.

By year 10, the house costs £325k, and the shopping costs £122. The house costs the same as 51 years' shopping.

That's maybe believable, just about, but let's imagine that lasting for 100 years.

At the end of year 100, the house costs £26.3 million, and the shopping costs £725. The house is now the same price as 698 years' shopping. Do you think that's likely to happen?

beingjdc

Kenny4315 wrote: »

Ever heard of double digit inflation ???

For a pay increase of £1000 an extra £3500 can be borrowed, using leverage.

Yes, it's something we used to have 20 years ago. If we have it again, interest rates will go through the roof, and house prices will go down, not up.

Kenny4315

If you look at the rise between 2000 and 2007 it's a hell of alot more than 5% don't you think ??

Even the most pessimistic of economists would predicted a more than inflation rise in house price in the long term.

beingjdc

Kenny4315 wrote: »

If you look at the rise between 2000 and 2007 it's a hell of alot more than 5% don't you think ??

Yes, I do. That's why we're having a crash, because rises that high aren't sustainable.

Prices are now falling 20% a year, that doesn't mean they can fall that fast forever either.

beingjdc

Kenny4315 wrote: »

For a pay increase of £1000 an extra £3500 can be borrowed, using leverage.

That's irrelevant.

Pay £10,000 - borrow £35,000.
Pay £11,000 - borrow £38,500.

A 10% increase in x is still only a 10% increase in x*y, if y remains constant, even if y is 10000000000000, never mind 3.5

Kenny4315

House price inflation is also driven by other factors such as population growth, lack of building land, etc. It is inevitable that over the long period it will be in excess of 'normal' inflation.

I have to own up. I did realise a few posts ago that I'd mis-calculated the leverage bit thought would have gotten away with it if it weren't for those meddling kids. But I still hold out that HPI will be substantially higher that RPI over the long term.