House Price Inflation/Income/Old Age

MRSTITTLEMOUSE

Conrad wrote: »

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.

Exactly.
We all have to take chances in life,can you imagine how little we'd gain if we did'nt.

MRSTITTLEMOUSE

angrypirate wrote: »

Mrstittlemouse
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.

Can't do that I'm afraid.
Anyway I was'nt talking to you.
So don't be rude .
I would'nt dream of telling anyone to shut up.

CLAPTON

Generali wrote: »

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.

Ok

1.Just to say that i haven't said that house prices would increase by 10%
2. also to say that having checked my arthmetic I see that after 10 years the increase in H would be 8,402 which is of course 84% and not 93% as I previously wrote.


However, your point as the asymptotic behavour is indeed a very good point and I now understand 'your arrow etc analogy'.

Looking at the figures the year on year percentage increase does indeed fall with time and will indeed approach an asymptotic value of real inflation of 2.5%.

However starting at 7.5% in the first year
it falls to
after 10 years to 5.2%
after 20 years to 4.2 %
after 30 years to 3.6 %
after 40 years to 3.3%

However, I would welcome your mums input to the maths (I just used a spreadsheet).

jim83

Your maths are sound but one of the initial axioms is flawed.

It is not possible to have wage inflation consistently above price inflation as individual purchasing power would increase to the point where someone could buy everything in the world with a single pay packet (well, all things other than houses in this scenario!).

The rate of change in house prices cannot be consistently above the rate of change in wages, because the rate of change in wages cannot be consistently above the rate of change in general prices.

princeofpounds

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.

Actually I agree with you on this premise totally, it wasn't you I was referring to (although that's not to say I bothered checking your maths!).

Nothing can inflate beyond the general economy forever, because if anything were to do so it would eventually become more expensive than the entire economy put together. Which is reductio ad absurdum - a preposition that cannot be logical because the conclusion is an impossibility.

Hopefully this table will come out ok and explain this numerically. If house prices were to appreciate at 9% and wages at 3%, within someone's house-owning lifetime of 50 years salary multiples would increase from an assumed 5x now to 84x. That's equivalent to an average house costing roughly £4million right now (You do not need to worry about inflation as both rates are explicitly included in the calculation and the multiple is a non-dimensional metric) .

In 100 years, houses would cost almost 1500x salary!

EDIT: Damn MSE won't accept pictures... try this:

---

Initial Value - Inflation Rate - Years - End Value
House

---

500

---

9%

---

50

---

37178
Wages----100

---

3%

---

50

---

438

CLAPTON

jim83 wrote: »

Your maths are sound but one of the initial axioms is flawed.

It is not possible to have wage inflation consistently above price inflation as individual purchasing power would increase to the point where someone could buy everything in the world with a single pay packet (well, all things other than houses in this scenario!).

The rate of change in house prices cannot be consistently above the rate of change in wages, because the rate of change in wages cannot be consistently above the rate of change in general prices.

You may well be correct that the Maltusian theory is indeed correct and we are damned to static or declining real income.

However as I've already said twice (and please do check it) basically since the second world war real income (over inflation) have averaged about 2.5% year on year.

At the moment I would expect the world gross product to increase for many years.
Whether that's also true for the UK I don't know; but for the next 20 years I would expect that GDP will over increase and that house prices at least in the SE will increase in real terms.

Generali

jim83 wrote: »

Your maths are sound but one of the initial axioms is flawed.

It is not possible to have wage inflation consistently above price inflation as individual purchasing power would increase to the point where someone could buy everything in the world with a single pay packet (well, all things other than houses in this scenario!).

The rate of change in house prices cannot be consistently above the rate of change in wages, because the rate of change in wages cannot be consistently above the rate of change in general prices.

Surely real wages can increase, long term, in line with productivity. Wages reflect the amount produced.

sjaypink

Conrad wrote: »

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.

I suppose I would wonder, reading this:

*how long it would take him to pay off if, for example, paying £800 per month?

*what the ratio of interest to capital payments would be if the rates went up to 4%, 5% etc?

*and in the worst case scenario (what is that, realistically? 8/9% ?) how much a mortgage on I/O would cost at those rates?

*thinking of sustainability, how many people at the moment have £30k savings and no debt?

*tempted to say.... what does £180k buy you in London?

*also tempted to say....... should you be advising on mortgages if your stance on huge amounts of debt is Yea yea rates can rise, so fkn what!

BleepinHell

MRSTITTLEMOUSE wrote: »

I'm a "loud and proud "older person who am truly sick of these "oh woe is me,why can't I have what I think is my right" youngsters on here.:rotfl:
Make me giggle daily,actually.
Well we did'nt have it all either,until we struggled hard.
Started off in a bedsit,but making huge sacrifices gets you what you want.
I have no guilt about struggling for years to pay off a mortgage and gradually getting to afford the house we aspired to,which we were only able to afford in the past four years.
We had to pay much more than the asking price for our present house because other people wanted it and it ended in a bidding war.
We did'nt complain about having to pay the extra we were just happy to get it and soon to retire we intend to end our days here.
We'll get no benefit and never have had any benefit in house price increases since we have never used any of the houses we bought as an asset only as a home.
You have to pay what things cost and house prices are no different.
When we do pop our clogs our kids will be quids in but we'll never see a penny of the equity in our home.
As far as I can see we've always just been glorified rent payers (without having the benefit of a landlord to do repairs),nothing more.

Just dont end up in care or your kids wont be quids in.
They will be bitter that you worked all your life and left nothing
Sell up and spend it

Davesnave

ukcarper wrote: »

So whats your point what am I supposed to do

I was being ironic........Well, I thought I was! :rotfl: