UK Home Prices Have NOT Reached A New Record High NOT In Real Terms

It makes a good headline, UK Home Asking Prices Now At All-Time High, but it’s only true in nominal terms, and it’s real (inflation adjusted) terms that actually matter.

According to the Rightmove House Price Index, the rise of 2.9% in April helped “national new seller asking prices to reach an all-time high of £243,737, beating the previous record set nearly four years ago in May 2008” by £1,327.

However, adjusted for retail price inflation (11.5% since May 2008), the national average asking price is still down in real terms by 9.9% and that’s all that matters.

Although we spend nominal Pounds, Euros and US Dollars, the important thing is how much those Pounds, Euros and US Dollars buy, i.e. their purchasing power, and that’s the problem. Inflation, which is grossly underreported, robs us of our purchasing power.

Take the UK National Minimum Wage (NMW) for example. The main rate for workers aged 21 and over is £6.08, and despite the fact that it is due to increase by 11p in October, the NMW will still be lower than it was in 2004 after inflation is taken into account.

The bottom line is that we live in a world where financial repression is prevalent, and as a result the nominal value of assets is much less relevant than there real value.

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