Rodney Dickens Booklet- The Real Housing Market Story
Excerpt from Chapter One: It is real house prices that matter.
“ The fall in house prices in 2008 will have dealt a blow to the myth that house prices never fall much, but it only scratched the surface of the real issue. In economics there is a focus on real or inflation-adjusted prices and I doubt that there is sufficient understanding of the importance of real prices.
If an investor buys a house the critical issue should be how the house price and rental income perform relative to prices in general. If over the lifetime of the investment the house price goes up 200% but prices in general increase 300% the purchasing power of the money invested in the house will have fallen 25% (i.e. when the investor sells the house the proceeds will buy 25% less goods and services than the money used to buy the house would have purchased).
Equally, if rents on the house go up 200% while prices in general increase 300% the purchasing power of the rental income will have fallen 25%. The question of what happens to rents relative to house prices is relevant to the decision between buying and renting and will be addressed in a future chapter.”