House prices are now back to 2002 levels.

Big_Zee

Hi,

I was doing a bitof analysis to find out what has happened to house prices in the last 10 years and amazingly they seem to be in exactly the same place - zero real growth in 10 years. So effectively based purely on price we are back to where we were in 2002 - except with a tougher mortage lending but cheaper interest rates.

Here's how I calculated it:

How have prices increased since 2002:
Got to http://houseprices.landregistry.gov.uk/price-calculator and put in 100,000 for the original price, and then put in the dates from: Dec 2002 TO Oct 2012. Select England and Wales as the location.

This give you a price inlfation of 35% over the 10 year period - IE your £100,000 house in Dec 2002 would be worth £135,000 Today.

Adjust for inflation:
Obviously to get the REAL price we now need to adjust for inflation. So to do that we need get the data for the same period - to do this go to http://www.bankofengland.co.uk/education/Pages/inflation/calculator/flash/default.aspx - here we can only get from 2002 to 2011 (which is 33 % ) - given 2012 has seen 3% interest, we can calculate that from 2002 to 2012 inflation was 36% IE you would need £136,000 today to buy what would could buy with £100,000 in 2002.

So there you have it - houses are now almost eactly cost neutral to what they were 10 years ago.

So the question is - where house prices good value, poor value or averagely priced in 2002?

ruggedtoast

Big_Zee wrote: »

Hi,

I was doing a bitof analysis to find out what has happened to house prices in the last 10 years and amazingly they seem to be in exactly the same place - zero real growth in 10 years. So effectively based purely on price we are back to where we were in 2002 - except with a tougher mortage lending but cheaper interest rates.

Here's how I calculated it:

How have prices increased since 2002:
Got to http://houseprices.landregistry.gov.uk/price-calculator and put in 100,000 for the original price, and then put in the dates from: Dec 2002 TO Oct 2012. Select England and Wales as the location.

This give you a price inlfation of 35% over the 10 year period - IE your £100,000 house in Dec 2002 would be worth £135,000 Today.

Adjust for inflation:
Obviously to get the REAL price we now need to adjust for inflation. So to do that we need get the data for the same period - to do this go to http://www.bankofengland.co.uk/education/Pages/inflation/calculator/flash/default.aspx - here we can only get from 2002 to 2011 (which is 33 % ) - given 2012 has seen 3% interest, we can calculate that from 2002 to 2012 inflation was 36% IE you would need £136,000 today to buy what would could buy with £100,000 in 2002.

So there you have it - houses are now almost eactly cost neutral to what they were 10 years ago.

So the question is - where house prices good value, poor value or averagely priced in 2002?

Depends on whether you STRd then I guess. They were already high. For example the house I grew up in was worth about £30 - £35k for most of the time I lived there in adolescence, but had almost tripled to £100k by 2002. Wages certainly hadnt tripled.

CLAPTON

whats clear is that
-he is probably paying less is cash terms now that in 2002 for the mortgage
-he is paying massively less in real terms for the mortgage
-he has at least 35k in equity and probably a lot lot more
-he didn't pay rent for 10 years

so whether is a was a good deal in 2002 I don't know but he's certainly got a good deal now.

ukcarper

CLAPTON wrote: »

whats clear is that
-he is probably paying less is cash terms now that in 2002 for the mortgage
-he is paying massively less in real terms for the mortgage
-he has at least 35k in equity and probably a lot lot more
-he didn't pay rent for 10 years

so whether is a was a good deal in 2002 I don't know but he's certainly got a good deal now.

and his wages probably haven't keep up with inflation.

Jegersmart

House prices have and will depend a lot on the availability of credit or "money". If you think that money expansion will continue in the future at past rates then that property may indeed look "good value" now.

ruggedtoast

Oh god, not this again...

Jegersmart

CLAPTON wrote: »

whats clear is that
-he is probably paying less is cash terms now that in 2002 for the mortgage
-he is paying massively less in real terms for the mortgage
-he has at least 35k in equity and probably a lot lot more
-he didn't pay rent for 10 years

so whether is a was a good deal in 2002 I don't know but he's certainly got a good deal now.

I think what is clear is that the equity in the property has been inflated by credit expansion in that period. His money has been devalued by that credit expansion because his income has not kept up (most likely). It is lucky that a) he is still in the same house, and b) that interest rates are currently very low. I wonder what would happen if house prices fall 30% over the next 5 years, and inflationary pressures increase considerably due to money printing which devalues currency further and then interest rates rise considerably to cool things off?

I agree he has not "paid rent" for 10 years, but he has paid "interest" instead.

If he keeps his job it may be that he will survive?

J

Jegersmart

ruggedtoast wrote: »

Oh god, not this again...

People always want to discuss house prices.....it is natural:)

J

grizzly1911

Jegersmart wrote: »

I think what is clear is that the equity in the property has been inflated by credit expansion in that period. His money has been devalued by that credit expansion because his income has not kept up (most likely). It is lucky that a) he is still in the same house, and b) that interest rates are currently very low. I wonder what would happen if house prices fall 30% over the next 5 years, and inflationary pressures increase considerably due to money printing which devalues currency further and then interest rates rise considerably to cool things off?

I agree he has not "paid rent" for 10 years, but he has paid "interest" instead.

If he keeps his job it may be that he will survive?

J

It also depends whether the house was brought as a home or an investment in it's own right. If it is the former does it really matter in the scheme of things. There would have been a cost of living somewhere.

ukcarper

If he had a 100% 25 year repayment mortgage at 4% he would now owe £71k and probably would have paid more in rent than mortgage payments.

CLAPTON

ukcarper wrote: »

and his wages probably haven't keep up with inflation.

I'm sure there are stats to show the wages change but I would guess wages have indeed kept up with inflation over the 10 year period.

Even if wages haven't kept up with inflation, his nominal salary will have increased a lot.

So the share of his income going to pay off the mortgage will be less both because wages have risen in nominal terms and interest rates have fallen.

Rents will have risen, so yes he had a very deal buying in 2002.