A lot of talk...

IveSeenTheLight

Paul_N wrote: »

Who said that line represents inflation? Its simply a trend line. The average increase in property prices over a time period. So you've gone off on a bit of a tangent with your figures there.

Well the line shows a trend which is relating to 2.4% from the graph.
If this was supposed to be something other than inflation then house prices wouldn't be keeping in line with the economy.

Inflation is the measure of by how much or little the cost of economy has changed, of which house prices need to stay in line, otherwise if house price trend was less than inflation then house prices would be cheaper for everyone in real terms

IveSeenTheLight

Generali wrote: »

The biggest problem with putting a straight line for inflation on the graph is that inflation has been far from constant over the period. Check the NSO website but I think you'll find they bounced around between 10-20% in the late 70s & early 80s, fell pretty dramatically through the 80s before another steep rise at the end of the Lawson Boom in the late 80s and then declined through to about 4-5 years ago since when they have been relatively static (in historic terms).

Which was why I used the total inflation between 1975 and 2006.
It works out the compounded inflation between those years despite high and low years.

Paul_N_4

IveSeenTheLight wrote: »

Well the line shows a trend which is relating to 2.4% from the graph.
If this was supposed to be something other than inflation then house prices wouldn't be keeping in line with the economy.

Inflation is the measure of by how much or little the cost of economy has changed, of which house prices need to stay in line, otherwise if house price trend was less than inflation then house prices would be cheaper for everyone in real terms

If that line represents inflation it would be at 5.93% as you worked out wouldn't it? Not 2.4%

You are entirely wrong. This is simply a trend line taking into consideration all the ups and downs on that graph for the period 1975-2008.

It may follow an inflation type increase because as you say house prices have to relate to inflation in some way. But it is not meant to be inflation. Its simply a historical trend.

IveSeenTheLight

3under3 wrote: »

I think a house worth 50k in 1975 would be on the market for a great deal more than 316k these days...

My parents bought a semi for around 30k in 1979 which were selling last year around the 300k mark.

I guess this will depend on the area and type of property.
Remember averages are justthat, an average.
There will always be properties which haven risen more and those that have risen less

adr0ck

3under3 wrote: »

I think a house worth 50k in 1975 would be on the market for a great deal more than 316k these days...

My parents bought a semi for around 30k in 1979 which were selling last year around the 300k mark.

think it depends on location

house bought round my way in 1979 25k (4 bed detached)

now worth just under 200k

obviously prices in Wales havn't gone up as much!

IveSeenTheLight

Paul_N wrote: »

If that line represents inflation it would be at 5.93% as you worked out wouldn't it? Not 2.4%

You are entirely wrong. This is simply a trend line taking into consideration all the ups and downs on that graph for the period 1975-2008.

It may follow an inflation type increase because as you say house prices have to relate to inflation in some way. But it is not meant to be inflation. Its simply a historical trend.

Actually if you go directly to the source of the graph, it is the Long term Real House Price Trend. and the new graph is now 2.8% trend line
http://www.nationwide.co.uk/hpi/historical/apr_2008.pdf
Why only 2.4% when inflation over the same period is 5.93% I do not know

And if the trend line is only 2.4% then its not taken into account inflation.
I think we can go round and round and round on this subject

Adjusting for inflation. then according to this link house prices should be 618% more today than they were in 1975

1975 = 30,000 2008 = 185,400
1975 = 40,000 2008 = 247,200
1975 = 50,000 2008 = 309,000
1975 = 60,000 2008 = 370,800
etc
etc
etc

Paul_N_4

IveSeenTheLight wrote: »

Actually if you go directly to the source of the graph, it is the Long term Real House Price Trend. and the new graph is now 2.8% trend line
http://www.nationwide.co.uk/hpi/historical/apr_2008.pdf
Why only 2.4% when inflation over the same period is 5.93% I do not know

And if the trend line is only 2.4% then its not taken into account inflation.
I think we can go round and round and round on this subject

Adjusting for inflation. then according to this link house prices should be 618% more today than they were in 1975

1975 = 30,000 2008 = 185,400
1975 = 40,000 2008 = 247,200
1975 = 50,000 2008 = 309,000
1975 = 60,000 2008 = 370,800
etc
etc
etc

It is taking into account inflation. The reason the trend is lower is because there have been house price falls as well as house price rises. Where as inflation has done nothing except go up.

Basically, if you add all the month's HPI increases/decreases (adjusted for inflation) from 1975 to now. Divide the number by the number of months between 1975 and now, you'll get 2.8%. You won't get a measure of inflation i.e. RPI.

What's also funny is it shows historically (if your inflation stats are correct), house prices don't keep up with inflation. Great investment!

beingjdc

Exactly. It's adjusted for inflation, keep that in mind.

So if it shows a trend of 2.4% it means the average increase is 2.4% MORE than inflation, not 2.4% overall.

IveSeenTheLight

Paul_N wrote: »

Basically, if you add all the month's HPI increases/decreases (adjusted for inflation) from 1975 to now. Divide the number by the number of months between 1975 and now, you'll get 2.8%. You won't get a measure of inflation i.e. RPI.

Ok, buut this still boils down to the fact that the House Price trend measured for over the last 30 years shows that house prices on average are overpriced by approx 22%.

So to get back on trend with the Long Term Real House Price Trend, house prices need to drop 22% now or 12.6% over the next three years

Still not a crash is it? Its a correction and one which would not have the devastating effects on the economy a lot of people on here (unsubconciously maybe) are hoping for (i.e. a house price crash)

Generali

IveSeenTheLight wrote: »

Ok, buut this still boils down to the fact that the House Price trend measured for over the last 30 years shows that house prices on average are overpriced by approx 22%.

So to get back on trend with the Long Term Real House Price Trend, house prices need to drop 22% now or 12.6% over the next three years

Still not a crash is it? Its a correction and one which would not have the devastating effects on the economy a lot of people on here (unsubconciously maybe) are hoping for (i.e. a house price crash)

Just a thought on the mathematics. Wouldn't the current boom have distorted the long term average growth rate, dragging it upwards? Similarly, a reduction in house prices would pull the long term rate of increase down.

I'd do the sums if I could be bothered.