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Debate House Prices
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House Price Inflation/Income/Old Age
Comments
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Your post is absolutely rubbish. It does not take into account general inflation. Your post assumed a fair wage inflation of 2.5% but does not assume any other inflation. You should apply an inflation of 2.5% for general / other spending too.My post was a response to the opt quoted view that house prices can't keep increasing in the long term above inflation.
If you don't want to increase your understanding of the situation then that's fine; if you do then reread my post.
On the other hand if you want to bear in mind a salary inflation of 2.5% on top of actual inflation (which is what i believe you may have intended to say but didnt) then I agree this does release more "cash" for housing. However this would not allow HPI to increase at a rate of 7% above CPI. This is how people progress up the property ladder. Let me explain.
Person A is a 25 year old grad and earns 30k after tax. He pays 10k pa on a little 2 bed flat and has 20k pa spending on other. Over the course of the next 10 years his salary increases by 6% pa (promotions in his job for example) whilst CPI is at 2.5%. His net income is now 53,400 (not taking into account other factors such as tax banding and NI contribution). This extra money he has received over and above CPI allows him to progress up the ladder to a 4 bed house for his new wife and 2 kids
10 years later Person B comes along. He is a grad of 25 years old and in the same job as person A. His salary, whilst equivalent to person A when he started, has increased to now 38,400 (30000*(1.025^10). His other spending is 25,600 pa( = 20000*(1.025)^10) so this leave 38,400-25,600 = 12801pa for his little 2 bed flat. 10000*(1.025^10) = 12801. Surely this shows that HPI cannot run at anything other than general inflation (CPI) to maintain sustainable market.
However, one thing not talked about is interest rates and lending multiples - ie affordability, which has happened recently0 -
To be fair I think most youngsters do what we did and get on with it. I have 3 kids all in their thirties all are buying their own houses without any help from me. Most of their friends are doing the same and this is in the Southeast.
Right, and this is the reality the bears cannot face.
This morning I arranged a mortgage for a London fireman on £33200 pa plus overtime of £1200pa.
The mortgage is £152000 after his 20% deposit and the rate with Marsden BS is 3.19% tracker. On interest only (he will overpay the to reduce capital just as I do - INT ONLY works out better than C&I but trembling uber bears dont get it), the payment is £405pm.
His take home pay is £1700 plus as with most firmen he runs his own biz on the side which nets him another £1k pm.
His debt to income ratio is 15%.
Yea yea rates can rise, so fkn what! Most of us do not live our lives based on armageddon scenarios, and you know wht, 99%+ DO NOT GET REPOSSESSED.
This is the reality. The uber bears are half baked and blinded by text book think.0 -
Christ there is some stupid mathematics on this thread, by people who clearly have no firm concept of the differences between inflation, nominal wage growth, real wage growth and so on...0
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Please correct me if I'm wrong but mathematically isn't your argument the same as the idea that you can never be hit by an arrow fired directly at you.
The reason?
After a period of time, the arrow is half way towards you from the point of the archer. After another period the arrow has halved the remaining distance.
However, the distance remaining can always be halved so the arrow will always have half of a distance until it gets to you.
By the logic you have, AIUI at least, the cash already in the housing market can continue to be leveraged indefinitely so that house prices can continue to rise by ever decreasing fractions of pennies.
I don't inderstand you analogy at all.
It's fairly standard economics stuff that as people get richer they shift the division of their spending. So the poor tend to spend a high proportion of their income on things like food etc.
As people get higher income, the proportion spent on food etc falls and more money is spent on 'luxury' items.
Nothing original there.
I'm pointing out that people may well allocate a higher proportion of their income as they get richer (in real terms) to housing and I'm just shown the maths of it.
So it is possible that as the population finds it easier to provide for the basics, they will allocate a higher proportion of their income to housing.
If this were so then it would provide a mechanism for an indefinite increase in house prices (in real terms).
As I say, fairly standard stuff.0 -
princeofpounds wrote: »Christ there is some stupid mathematics on this thread, by people who clearly have no firm concept of the differences between inflation, nominal wage growth, real wage growth and so on...
And it makes you wonder why they need to keep doing them:rotfl:.
What is it that they're trying to convince themselves about because they certainly don't convince anybody else.0 -
I'll be the first to admit im no economist or banker. All i was trying to do was present a simple demonstration why the cost of shelter cannot sustainably increase at a rate of 6% over general inflation.0
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I don't inderstand you analogy at all.
It's fairly standard economics stuff that as people get richer they shift the division of their spending. So the poor tend to spend a high proportion of their income on things like food etc.
As people get higher income, the proportion spent on food etc falls and more money is spent on 'luxury' items.
Nothing original there.
I'm pointing out that people may well allocate a higher proportion of their income as they get richer (in real terms) to hosuing and I'm just shown the maths of it.
So it is possible that as the population finds it easier to provide for the basics, they will allocate a higher proportion of their income to housing.
If this were so then it would provide a mechanism for an indefinite increase in house prices (in real terms).
As I say, fairly standard stuff.
Absolutely I agree with that, as people get richer they turn their spending from survival to thriving and hedonism.
However, that isn't the same thing as saying that house prices can continue to increase at about 10%pa. Mathematically I think (and it's been a very long time since I studied any maths) that your argument means that house prices would rise at an ever decreasing rate but continue to tend towards a certain point - as housing tends towards consuming all of the income, the house price rises tend to zero.
Any mathematicians on here? If not I'll get my Mum involved. She taught A' level maths for a billion years*.
*I may be exaggerating slightly.0 -
MrstittlemouseMRSTITTLEMOUSE wrote: »And it makes you wonder why they need to keep doing them:rotfl:.
What is it that they're trying to convince themselves about because they certainly don't convince anybody else.
We do them because we are trying to answer the OPs question and justify the answer. If you dont have anything constructive to say in response to the OPs question (or further points that are raised) then why dont you just shut up.0 -
An alternative prediction:
Interest rates will go up to "normal" levels. There will be some increase in repossessions but not a lot because only comparatively few people have been able to get mortgages recently and so be dependent on the low interest rates. Most people with mortgages took them on whilst the interest rates were normal.
When interest rates go up the lenders will be happier to lend and so will decrease the required deposit. More people will be able to get mortgages leading to increased demand. House prices will go up.
Place your bets here!!
Has history ever shown a return to "normality" straight after any extreme. No, I don't think so. We always have the pendulum effect - too far one way, then too far the other, then eventually settles back to equilibrium. It's almost inevitable that interest rates and inflation will rise to above-normal levels before they fall back again. The only variable is how long it takes and how far they go in the other direction.0 -
angrypirate wrote: »Your post is absolutely rubbish. It does not take into account general inflation. Your post assumed a fair wage inflation of 2.5% but does not assume any other inflation. You should apply an inflation of 2.5% for general / other spending too.
On the other hand if you want to bear in mind a salary inflation of 2.5% on top of actual inflation (which is what i believe you may have intended to say but didnt) then I agree this does release more "cash" for housing. However this would not allow HPI to increase at a rate of 7% above CPI. This is how people progress up the property ladder. Let me explain.
Person A is a 25 year old grad and earns 30k after tax. He pays 10k pa on a little 2 bed flat and has 20k pa spending on other. Over the course of the next 10 years his salary increases by 6% pa (promotions in his job for example) whilst CPI is at 2.5%. His net income is now 53,400 (not taking into account other factors such as tax banding and NI contribution). This extra money he has received over and above CPI allows him to progress up the ladder to a 4 bed house for his new wife and 2 kids
10 years later Person B comes along. He is a grad of 25 years old and in the same job as person A. His salary, whilst equivalent to person A when he started, has increased to now 38,400 (30000*(1.025^10). His other spending is 25,600 pa( = 20000*(1.025)^10) so this leave 38,400-25,600 = 12801pa for his little 2 bed flat. 10000*(1.025^10) = 12801. Surely this shows that HPI cannot run at anything other than general inflation (CPI) to maintain sustainable market.
However, one thing not talked about is interest rates and lending multiples - ie affordability, which has happened recently
Reread my post and notice the word 'real' in association with increase in income.
Perhaps I should have explained what that means .. it means the increase over and above 'ordinary inflation'
as I said, that the REAL (over and above inflation) increase in incomes has run about 2.5% over the last 50 years.
It explains why house prices can, over the long term, increase in price over and above inflation.
and of course there are many other factors that affect things too, availability of credit, two peoples incomes etc etc.0
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