House Price Crash Discussion Thread

oneacourt

In many parts of the south east (e.g. London, Cambridge etc) house prices are said to be near there peak. However, we have 5% inflation per year and the Pound is much lower against the Euro, Swiss Franc and other strong currencies, so house prices only look similar, they are still some 20% lower and could imho drop further.

Bullion_Baron

At least house prices in the UK have stopped inflating. The party's over and everyone knows it. Asset prices couldn't keep rising forever!

Where I live in Australia we have a serious debt problem and housing bubble that still needs to be addressed. But at the moment it’s not even being acknowledged. Why not?

Could it be that if we acknowledge the debt and the need to deal with it, we have to acknowledge its cause? And could it be that the cause is too unpalatable to reveal? Could it be that successive Australian governments, along with business, have been running a Ponzi scheme with our assets, our resources and our future? It's unsustainable.

johnno71

Apart from markets like the expensive parts of London, which seem to have a life of their own, prices have been pretty flat over the last few months.

What is interesting though is to look at "real house prices" - i.e., house prices adjusted for inflation. The best place I know to do this is on the Nationwide website (Google "nationwide house price index" then click on "data download". Once you get there choose "UK house prices adjusted for inflation" from the drop down menu.)

Based on the Nationwide figures, house prices are lower now (in real terms) that at any time since the start of the crash:

Q1 2009: £149,709 (actual) £164,078 (inflation adjusted)
Q1 2011: £162,379 (actual) £162,379 (inflation adjusted - they get the older inflation adjusted figures by working backwards from the most recent quarter)

Things look very difference once you take into account inflation!

IveSeenTheLight

johnno71 wrote: »

Things look very difference once you take into account inflation!

When you buy something, what has historic inflation got to do with it?

As far as I remember, people buy for a nominal amount.

Bullion_Baron

IveSeenTheLight wrote: »

When you buy something, what has historic inflation got to do with it?

As far as I remember, people buy for a nominal amount.

But if you take inflation into account, maybe you'd be better off with a different asset class.

sabretoothtigger

Not that many would be better off renting and investing elsewhere because its not easy to be that savvy plus housing has tax breaks other things dont

Also if you save 1 hour each way on your commute and earn 40k a year. This is equal in earning power of 64 pounds each day, thats how much living closer to your work is worth to that person in 'savings' not including actual cost of travel

Add that up its like 20k a year that person can justify spending on a house instead of commuting.
No wonder london costs so much many earn more then 40k and/or have multiple earners in 1 household

House Prices adjusted for retail prices. This uses the Office for National Statistics Retail Price Index (RPI) to convert nominal prices to current prices
For example, a typical property in 2005 Q1 would, on average, have cost £152,790 at the time.
The buy this amount of 'retail goods' today would require c£186,169
A smooth trend has been fitted to the real house price series. This trend has been fitted from 1975 Q1 to the latest quarter and is an exponential curve.

Simple version


I always say both sides are wrong in a price debate because anything can happen. What I see from this Nationwide data is that we have two scenarios

Either inflation stops dead and house prices fall 60% or house prices stagnant here and inflation averages about 5% per year for the next 10 years. I know which is more likely to me






Squiggly


https://spreadsheets.google.com/spreadsheet/pub?hl=en_US&hl=en_US&key=0AoF8H3kYSfq-dEM3bVF4MFBFMDhTTS1HbGJyMXpSNXc&output=html

IveSeenTheLight

Bullion_Baron wrote: »

But if you take inflation into account, maybe you'd be better off with a different asset class.

Why, can you historically buy a different asset class?

Surely it's whether the asset remains in line with inflation from when you bought it.

Certainly according to Nationwide IIRC, their long term "real house price" graph shows property rose circa 2.9% above inflation each year over the previous 30 years.

LoopBook7

Apparently prices are now supposed to be on the up due to better mortgage deals on the market. You just don't know what to believe - it's always a good bet for the media to have a quick piece on house prices since it applies to so many people..

Bullion_Baron

IveSeenTheLight wrote: »

Why, can you historically buy a different asset class?

Surely it's whether the asset remains in line with inflation from when you bought it.

Certainly according to Nationwide IIRC, their long term "real house price" graph shows property rose circa 2.9% above inflation each year over the previous 30 years.

2.9% isn't that great. I can get 6.5% on a TD here in Australia. Much safer with no downside risk.

Massive downside risk with property, especially if you're leveraged to the hilt!

evosy1978

hmmm emigration in a few years time springs to mind.....:beer: