House prices: inflation wipes thousands off property values - YAY BULLS WIN!

geneer

http://www.telegraph.co.uk/finance/personalfinance/borrowing/mortgages/8626790/House-prices-inflation-wipes-thousands-off-property-values.html

Your home may have risen in value – on paper. But factor in inflation and the picture is bleaker.

Do you think you are a winner at the house-price game? Even if your home hasn't lost monetary value since you've bought it, rampant inflation means that most people who bought a property after 2006 have seen their house price decrease in real terms.
According to analysis from LSL Property Services, house prices have increased by just 11pc between 2006 and 2011, which means that the actual worth of the average home has gone down.

This is because inflation has increased by 17pc in the same period, while salary growth is up 15pc. For home owners in many parts of the country, the situation is far worse. Property prices in East Anglia and the North West have been fairly static since 2006, while home owners in the East Midlands have lost money. The total picture is being skewed by London.

This effect is having huge consequences on personal wealth. For example, a home owner who bought a property in the North West for £250,000 in 2006 may think they have lost no money if it is still valued at that level today. However, in real terms that house has lost more than £42,500 since 2006, because of inflation over the period of 17pc.

Ray Boulger, of mortgage broker John Charcol, said most people didn't realise that they would have lost money even if their house price stayed the same. "The house price falls in the Nineties were much worse than most people think they were, because inflation was so high," he said. "People think that they bought a home at a certain price. When they sell it they regard what they make as a real gain, whether it is due to inflation or not. They simply don't factor it in, although they should."

The toxic combination of rising inflation and falling or static house prices is set to continue for some time to come, with economic forecasters now expecting interest rates to remain low, encouraging inflation. The situation will further erode Britain's housing wealth – much of which is being saved up to pay for long-term care.
Simon Kirby, an economist at the National Institute of Economic and Social Research, is forecasting a further five-year period during which house prices will not outrun inflation. The NIESR is forecasting that property values in Britain are set to fall by 4.5pc this year and by 10.5pc by the end of 2015, in real terms. Mr Kirby said this fall would add to national economic weakness. "When people have equity in their homes because their house price has outstripped inflation, they feel that they need to save less for retirement and so they spend more now," he said, adding that house-price wealth also encouraged people to remortgage and spend money on home improvements.
Even those who have become used to living with substantial equity in their homes could struggle as the divergence between inflation and house prices continues. According to the LSL figures, house prices rose by 79pc in the five years to 2006, while inflation was only 11.7pc over the period. However, another five years of rising inflation and falling house prices could erode much of that equity.

Rinoa

geneer wrote: »

http://www.telegraph.co.uk/finance/personalfinance/borrowing/mortgages/8626790/House-prices-inflation-wipes-thousands-off-property-values.html

17% inflation eh?

So, someone who has say, a £200k mortgage, has had their balance reduced by 17% in real terms.

Great news for borrowers. :rotfl::rotfl::rotfl:

macaque_2

Rinoa wrote: »

17% inflation eh?

So, someone who has say, a £200k mortgage, has had their balance reduced in by 17% in real terms.

Great news for borrowers. :rotfl::rotfl::rotfl:

Only if they have enjoyed a 17% increase in their disposable income. Its inflation Jim but not as you know it (or would want to know it).

Thrugelmir

macaque wrote: »

Only if they have enjoyed a 17% increase in their disposable income. Its inflation Jim but not you know it (or would want to know it).

Isn't the average household suffering a decline in disposable income currently?

So even less support for house prices.

Thrugelmir

Rinoa wrote: »

17% inflation eh?
So, someone who has say, a £200k mortgage, has had their balance reduced in by 17% in real terms.

Great news for borrowers. :rotfl::rotfl::rotfl:

While still paying a real cost for borrowing the mortgage monies...... Total purchase price is interest and fees inclusive not merely price paid.

When wage inflation was high, then debt was eroded. That was a driver of house prices some years ago. For the past 10 its effects have slowly diminished as fewer and fewer people have seen real increases in income. Some jobs such as people in accounts roles on the whole earn no more, so less

JWF

One thing to remember about inflation is that as well as reducing the value of my house in real terms it is also reducing the real value of my mortgage and mortgage payments so the picture isn't quite as bad as some would make out. Obviously the higher the LTV ratio then the more significant this will be, so it doesn't affect all homeowners in the same way.

dkmax_2

It's a bit rich for a newspaper to be pointing out the effects of inflation on the value of housing when they've been ignoring it for the last three decades themselves. Like many here, I'm forever writing in pointing out that they haven't adjusted for inflation in some survey or another regarding the value of homes.

It is very much like their obsession with being a "millionaire". Aside from the flexible definition (liquidity vs net worth), it isn't quite the same thing as when Cole Porter wrote a song about it in the 1950s or when Henry Lehrman made his film in the 1930s.

LydiaJ

As well as the considerations already pointed out by other posters, the article is also ignoring the fact that this hypothetical person who has "lost" £42,500 since 2006 has been able to live in the house for five years without paying rent on it.

Sibley

At the end of the day I dont really care about prices,just so long as Geneer is priced out and renting. That goes for all the HPC gang.

We want to keep you off the property ladder. Everyone is working against you.

FATBALLZ

Ray Boulger, of mortgage broker John Charcol, said most people didn't realise that they would have lost money even if their house price stayed the same.

Surely that's because they haven't, they still have a house worth the same amount of money as before. They may have lost wealth, but they haven't lost 'money'.

geneer

Sibley wrote: »

At the end of the day I dont really care about prices,just so long as Geneer is priced out and renting. That goes for all the HPC gang.

We want to keep you off the property ladder. Everyone is working against you.

Epic Fail.