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Debate House Prices
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House price inflation - is this good? I thought inflation was bad!!
Comments
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HAMISH_MCTAVISH wrote: »20% when compared against the price of televisions, chocolate and bananas you mean.
...
If you must compare, do so against wages. Which usually lag inflation anyway.
That doesn't help your case. Peak to trough, the 90s house price fall is 40% measured by wages/house prices rather than 20% measured by CPI adjusted prices (I don't visit "pricedout" by the way – showed up in google search!)
HAMISH_MCTAVISH wrote: »I fail to see the obsession with "real terms" inflation conversion with regards to house prices.
It's absolutely irrelevant.
In nominal terms, the Zimbabwean housing market is the best performing in history....absolutely astonishing gains mate...don't get me started on their stock market either!
I can't see how you can argue that adjusting for inflation doesn't matter with asset prices. As you said, official measures of inflation have strong correlations to wages and a direct correlation to pensions and benefits.0 -
I think you might be saying that because I own my home, I`m not paying rent, so therefore I am £500ish per month better off than if I didn`t own this place. Is that correct ?
Pretty much.
The house delivers a financial return to it's owner. Whether the owner lives in it (and avoids paying rent) or rents it out (and pockets the rent). The return is the same either way.
The thing that makes investment return on housing different to that of other investment assets, is that buying the house is effectively free. It's a substitutive cost, not an additional cost.
As an example.... (and ignoring inflation of rent or house prices)
Average house is around 160K.
Average rent is around £8500 per year.
Average person has around 60 years of adult lifetime housing to pay for.
Cost to buy = 160K, plus another 120K or so in interest.... Total cost £280,000.
(BUT, you own the asset worth 160K at the end to do with as you please.)
Cost to rent = £510,000...... plus you'd then need to save an additional 160K to be in the same position as the buyer at end of life. Now yes, some of that will be from compounding interest, but you're still looking at over 600K spend versus 280K spend with owning.
The difference is the return on investment from buying the house.
The house is a financial asset, whether you want to believe it or not.“The great enemy of the truth is very often not the lie – deliberate, contrived, and dishonest – but the myth, persistent, persuasive, and unrealistic.
Belief in myths allows the comfort of opinion without the discomfort of thought.”
-- President John F. Kennedy”0 -
HAMISH_MCTAVISH wrote: »As an example.... (and ignoring inflation of rent or house prices)
Average house is around 160K.
Average rent is around £8500 per year.
Average person has around 60 years of adult lifetime housing to pay for.
Cost to buy = 160K, plus another 120K or so in interest.... Total cost £280,000.
(BUT, you own the asset worth 160K at the end to do with as you please.)
Cost to rent = £510,000...... plus you'd then need to save an additional 160K to be in the same position as the buyer at end of life. Now yes, some of that will be from compounding interest, but you're still looking at over 600K spend versus 280K spend with owning.
The difference is the return on investment from buying the house.
The house is a financial asset, whether you want to believe it or not.
Which would all be lovely if people bought one house and lived in it forever. Which isn't the case.
As it isn't the case, people also have to pay stamp duty, legal costs etc etc. Theres also a little thing called maintanance.
Now, owning a house outright is obviously cheaper, and so is buying, over the long term. But your calculations are very weighted towards the house.0 -
That doesn't help your case.
I'm not making a case, just stating facts.
Nominal gains and losses are really all that matter to homeowners and non-owners alike.Peak to trough, the 90s house price fall is 40% measured by wages/house prices rather than 20% measured by CPI adjusted prices
Indeed.
But the 13% actual price falls happened in the first 2 years. They then stagnated for years and wages grew.
The adjustment against wages that happened impacted owners and non owners equally. There was no gain for non-owners that didn't also happen for owners. In otherwords there was no loss for homeowners because their wages grew whilst prices stagnated....I can't see how you can argue that adjusting for inflation doesn't matter with asset prices. As you said, official measures of inflation have strong correlations to wages and a direct correlation to pensions and benefits.
When prices were falling in 2008/2009 inflation was negative for much of that time. I'm not using inflation to say "well actually, the real terms falls were lower than nominal".
Especially when wages kept rising throughout....“The great enemy of the truth is very often not the lie – deliberate, contrived, and dishonest – but the myth, persistent, persuasive, and unrealistic.
Belief in myths allows the comfort of opinion without the discomfort of thought.”
-- President John F. Kennedy”0 -
HAMISH_MCTAVISH wrote: »...Nominal gains and losses are really all that matter to homeowners and non-owners alike...
although as ever i'll pick you up on your fatuous "homeowners/non-owners" dichotomy [e.g. i am a homeowner but fervently hope that prices fall because i would like to trade up] i do pretty much agree that a 'real house price' is not a very useful concept.HAMISH_MCTAVISH wrote: »...When prices were falling in 2008/2009 inflation was negative for much of that time...
i.e. the real term falls during that period were smaller than the nominal falls.
except then one remembers that RPI inflation was only negative because of (1) falling house prices; and (2) [especially] falling interest rates... and one asks oneself why one would be adjusting house prices upwards on account of the fact that interest rates have been falling and, er, so have house prices... kind of circular and meaningless.FACT.0 -
This is probably the fairest way to compare the cost of renting vs buying in the short/medium term (by not including the repayment component of a mortgage)
Cost of renting
Annual rent – annual net income from savings (notional "deposit")
Cost of buying
Annual cost of interest only component of mortgage + estimated annual cost of repairs which would be paid by landlord under an AST + annual service charges (assumed to be inclusive in rent in rent example) – estimated annual appreciation in property value0
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