Any maths gurus?
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I am trying to do a chart for future house prices based on historical data. I can do a graph and extrapolate but am stuck in trying to determine average prices rises/falls over a set period.
In 1952 the average house price was £1,890. 50 years later in 2002 it was £96,800.
That seems to be a rise of just over 5000%. But I don't think I can just divide that by 50 to get the average annual rise as it's compounded.
So what formula do I use to work out say, what the property will be worth in x years based on average increases over the past 50. Many thanks, dl
In 1952 the average house price was £1,890. 50 years later in 2002 it was £96,800.
That seems to be a rise of just over 5000%. But I don't think I can just divide that by 50 to get the average annual rise as it's compounded.
So what formula do I use to work out say, what the property will be worth in x years based on average increases over the past 50. Many thanks, dl
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i'm no maths guru and that's official, but i think parry's tables will help you. i can't remember the formula, but hopefully with the referenceto "parrry's tables" you'll find it on google somewhere
HTH
ps i'd be interested to see your results if possible
HTH
ps i'd be interested to see your results if possible
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96800 / 1890 = 51.21
Over 50 years, the "average" increase will have been by a factor x, where
x = 50√51.21 (by which I mean the 50th root of 50.21, not 50 times the square root)
Most calculators can't do anything other than square and maybe cube roots, but most will have an x^y function (i.e. x to the power of y), so you can use
x = 51.21 ^ (1 / 50)
instead (i.e. 51.21 to the power of one over 50)
This will give you a figure of about 1.0819, meaning house prices increased by a factor of 1.0819 per year, or 8.19%.
Multiply the house price by this value for each year.
To compound over n years, multiply by x ^ n, i.e. x to the power of n
Hope this helps.
Over 50 years, the "average" increase will have been by a factor x, where
x = 50√51.21 (by which I mean the 50th root of 50.21, not 50 times the square root)
Most calculators can't do anything other than square and maybe cube roots, but most will have an x^y function (i.e. x to the power of y), so you can use
x = 51.21 ^ (1 / 50)
instead (i.e. 51.21 to the power of one over 50)
This will give you a figure of about 1.0819, meaning house prices increased by a factor of 1.0819 per year, or 8.19%.
Multiply the house price by this value for each year.
To compound over n years, multiply by x ^ n, i.e. x to the power of n
Hope this helps.
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Thanks Richard and dh.
So if I just start off with say £200,000 price in a year it will be £216,388 (x 1.0819) and the year after £234,101 etc. That's what I wanted. Thanks.
In 1952 btw a house cost 4.12 x income and in 2002 cost 4.10 x income. But I don't know if that was net or gross income. I think it's nearly a factor of 5 today??
I think what would be more relevant would be "what percentage of take home pay" was needed to service a 100% mortgage because that would take into account tax and interest rates. dl
So if I just start off with say £200,000 price in a year it will be £216,388 (x 1.0819) and the year after £234,101 etc. That's what I wanted. Thanks.
In 1952 btw a house cost 4.12 x income and in 2002 cost 4.10 x income. But I don't know if that was net or gross income. I think it's nearly a factor of 5 today??
I think what would be more relevant would be "what percentage of take home pay" was needed to service a 100% mortgage because that would take into account tax and interest rates. dl
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Or the 'time value of money'
If the average rise on a house over the 50 year period is 8.19% per year, to work out the actual returns per year you have to calculate a discount factor (expressed as a percentage) that takes into account the time value of money - i.e. what a £1 put in a bank 50 years ago is worth today.
If the average rise on a house over the 50 year period is 8.19% per year, to work out the actual returns per year you have to calculate a discount factor (expressed as a percentage) that takes into account the time value of money - i.e. what a £1 put in a bank 50 years ago is worth today.
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Is this based on household income? In the 50's I'd imagine that only one partner went out to work, whereas more often than not both partners work today, so by that argument, the cost of a house is closer to 8 x an individuals income.
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I am researching because my accountant who is full of doom and gloom says I would be better off "downsizing" and not having a mortgage around my neck. Now I don't want to move and could get a long term fixed rate mortgage at 5.99%. So if prices go down or stay static he is right BUT if, in the long term, prices move as they have done historically I will survive.
My personal view is that houses are overpriced just at the moment and will get a knock for a couple of years, remain flat and then begin their inexorable upward trend. Global economic meltdown, war and severe climate change excepted. But what do I know? - no more than the bloke in the pub sitting next to me!! dl
Last edited by David Lock; 30 April 2007 at 04:59 PM.
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