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Real Vs Nominal - Lets Nail It
Pimperne1
Posts: 2,177 Forumite
In 2005 when the HPC website really kicked in there were pronouncements about how much house prices would fall and, correct me if I am wrong, there were forecasts of around 50% which many thought realistic.
Let's say Jun 2005 for the sake of argument when average prices were, according to Nationwide as I can't find LR data for that period, £157,791. I think at that time an average price of around £80k looked attractive to posters and when they did their historic income multiples it all worked out pretty well.
If I had popped up then and said "Actually they won't go down much in the next six years but they will stay about the same. Although that's certainly not as attractive as a 50% drop, in "real" terms after inflation and the drop in value of our currency is taken into account, its not too far off".
To the question "How is that going to help me?". If I had had the benefit of a crystal ball I could have said "Take out a loan of the amount you would have taken a mortgage and invest in Swiss Francs/Gold etc".
To those who couldn't see the future and who had say, a £15k deposit, they have probably had rises in wages and their £15k has appreciated somewhat but to be honest they aren't much further forward than they were in 2005 are they?
Let's say Jun 2005 for the sake of argument when average prices were, according to Nationwide as I can't find LR data for that period, £157,791. I think at that time an average price of around £80k looked attractive to posters and when they did their historic income multiples it all worked out pretty well.
If I had popped up then and said "Actually they won't go down much in the next six years but they will stay about the same. Although that's certainly not as attractive as a 50% drop, in "real" terms after inflation and the drop in value of our currency is taken into account, its not too far off".
To the question "How is that going to help me?". If I had had the benefit of a crystal ball I could have said "Take out a loan of the amount you would have taken a mortgage and invest in Swiss Francs/Gold etc".
To those who couldn't see the future and who had say, a £15k deposit, they have probably had rises in wages and their £15k has appreciated somewhat but to be honest they aren't much further forward than they were in 2005 are they?
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If I had popped up then and said "Actually they won't go down much in the next six years but they will stay about the same.
Around 2005, you would have been laughed at by many of the more bullish types. I'm obviously bearish, and predicted 25 - 35% falls, but would have probably agreed with you that in 6 years time, prices would be about the same (maybe a little lower, if I'm honest).
Anyway, it's getting tiring, all this "I was right, you were wrong" business. The fact is that I don't recall many people predicting a credit crunch, followed buy massive government intervention. I felt that things were going to go pear shaped in the near future, and said to more than 1 person "the money will run out". One of my mates laughed at me when I said that. This wasn't me being an economic genius or anything, it was just good old fashioned common sense. Instead of bathing in the glow of high HPI and ever higher borrowing, I looked at some of the people around me, listened to and read the news, and thought "this will have to stop".30 Year Challenge : To be 30 years older. Equity : Don't know, don't care much. Savings : That's asking for ridicule.0 -
This wasn't me being an economic genius or anything, it was just good old fashioned common sense. Instead of bathing in the glow of high HPI and ever higher borrowing, I looked at some of the people around me, listened to and read the news, and thought "this will have to stop".
Spot on. Remember the conversations well.0 -
Thrugelmir wrote: »Spot on. Remember the conversations well.
Rather than boasting, and saying "I told you so", it saddens and annoys me that there weren't more people like me that weren't "living just for today". I think it's a dangerous game being played, where many of the people who took part in the credit binge are being let off the hook to a large degree. Very nice to not see people suffer and all that, but it's teaching a very dangerous lesson...... borrow big, and don't worry about the consequences - there won't be any.30 Year Challenge : To be 30 years older. Equity : Don't know, don't care much. Savings : That's asking for ridicule.0 -
I still remember my late grandparents telling me how they scrimped and saved to buy their first house. Both came from the old London docklands in Limehouse. So work everyday was never guaranteed. With families of 10 plus living in rented 2 bed accommodation. So their attitude to money was so totally different that of today. My grandfather walked 6 miles to work and back everyday to save the sixpence bus fare (2.5p in new money).0
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Thrugelmir wrote: »I still remember my late grandparents telling me how they scrimped and saved to buy their first house. Both came from the old London docklands in Limehouse. So work everyday was never guaranteed. With families of 10 plus living in rented 2 bed accommodation. So their attitude to money was so totally different that of today. My grandfather walked 6 miles to work and back everyday to save the sixpence bus fare (2.5p in new money).
"You don't know your born" etc.
Actually, it's a serious point, that the current generation have a massively different attitude to their personal finances than they would have done a few decades ago. I'm all for progress and entrepreneurial spirit, but things went too far in recent times in my opinion. Those that complain about 10% deposits etc are asking for those times to return. Had we not played fast and loose with our lending, it's arguable that 10% deposit requirements would not be a problem for the FTBers of today (well, no more of a problem than it was to myself or my parents).30 Year Challenge : To be 30 years older. Equity : Don't know, don't care much. Savings : That's asking for ridicule.0 -
"How is that going to help me?"
It obviously isn't.
"Real terms falls" are a desperate fall-back position for argumentative housing bears when they realise the game is up and they've lost the debate.
Because if the bulk of a correction is through inflation adjustment, you might as well go ahead and buy.
Even putting aside all the low lifetime trackers that were around pre-crash, had you walked into any high street branch of major lenders such as Nationwide or Lloyds TSB you could have had a 100% LTV mortgage at base + 0.5% for 2 years, reverting to base plus 2% for life. And a great many people do.
Assuming a purchase at absolute peak in Q3 2007, the numbers work out roughly as follows:
200K mortgage.
After 4 years 25K of the capital has been repaid, 175K remaining.
After 5 years 32K of the capital has been repaid, 168K remaining.
The mortgage payments in total, capital and interest, would have been equivalent to a rental yield of 5.3%,which is pretty much bang on the national average.
The property value today, based on the Nationwide average, would be 180K.
So for those on a typical variable rate mortgage in 2007, and assuming average falls from peak and average rents, it is now cheaper to have bought at absolute peak, even with a 100% mortgage, than to have rented the same property since.
This is why time is the enemy of housing bears.:cool:“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: »"Real terms falls" are a desperate fall-back position for argumentative housing bears when they realise the game is up and they've lost the debate.
:T Hamish is the winner. The debate is over. Move along now, nothing to see here.
On the other hand, I don't think the debate is over, and there are plenty of things to discuss. The truth is while predictions of 50% reductions by 2010 were obviously wrong, I'd say that less bearish predictions (such as my own) have not been so wrong as you would like to believe. The longer stagnation continues, the more "right" some of the bearish predictions are. I said it yesterday, around 2005/6, there weren't many folk predicting any kind of house price falls, and it now appears with hindsight that those of us who did predict falls were not a million miles out.30 Year Challenge : To be 30 years older. Equity : Don't know, don't care much. Savings : That's asking for ridicule.0 -
:T Hamish is the winner. The debate is over. Move along now, nothing to see here.
On the other hand, I don't think the debate is over, and there are plenty of things to discuss. The truth is while predictions of 50% reductions by 2010 were obviously wrong, I'd say that less bearish predictions (such as my own) have not been so wrong as you would like to believe. The longer stagnation continues, the more "right" some of the bearish predictions are. I said it yesterday, around 2005/6, there weren't many folk predicting any kind of house price falls, and it now appears with hindsight that those of us who did predict falls were not a million miles out.
Stagnation was generally the position of the Bulls, otherwise known as a soft landing, I don't know how you can claim anything but serious falls as a vindication of the bear position.'Just think for a moment what a prospect that is. A single market without barriers visible or invisible giving you direct and unhindered access to the purchasing power of over 300 million of the worlds wealthiest and most prosperous people' Margaret Thatcher0 -
a vindication of the bear position.
Pretty difficult to establish that such a thing exists, given that for most people it would have been cheaper to buy at peak than to rent the same house since.:)“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 -
Stagnation was generally the position of the Bulls, otherwise known as a soft landing, I don't know how you can claim anything but serious falls as a vindication of the bear position.
Well, given that any mention of any sort of -HPI, pre 2007, was often greeted with dismisal/laughter/accusations of being a nutter, then I feel a fair bit of vindication. If I remember correctly, there were all sort of predictions of things like house prices doubling every 7 years, average semi-detached being £250K within a few years. These predictions have been proved as accurate as 70% price falls.30 Year Challenge : To be 30 years older. Equity : Don't know, don't care much. Savings : That's asking for ridicule.0
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