It seems as if economists and government just want to confuse us more when it comes to making us think we’ve a good deal on a new home. Recent headlines in the Telegraph state that the price of houses will fall back to a level comparable to the year 2002.
This would seem to suggest that homes will be cheaper, right? Actually, they throw in a few punches whilst making us think that we will be paying less. The biggest is inflation. Although the average house price today is set at £161,000, by the year 2016 houses will most likely average £170,000. That is a staggering £9,000 difference in just five years and by no stretch of the imagination a drop in what we are paying today.
The way they calculate that this is actually costing us less money is by factoring in inflation. These figures, in their eyes, represent a 6% increase in five years but they rationalize that it is actually a fall of 11% because inflation will be so much higher. Now look at this in terms of the average worker in the UK.
If, for example, the average worker made £24,000 at the moment, with a 6% increase by the year 2016 that same worker would be making £25,440. That’s possible perhaps. With pay rises and perhaps expanded benefits packages that ‘could’ happen. But when you adjust for the actual rate of inflation being set at 11%, that worker ‘should’ be making £26,440 in the year 2016.
With austerity measures in place and not ready to be relieved any time in the near future, it is unlikely that the average worker will see an 11% rise in pay over the next few years. Certainly inflation will increase by at least that much, but it is highly doubtful that pay will rise accordingly.
Are house prices really dropping? Perhaps in terms of inflation, but certainly not in terms of our net pay.
