Hey guys, it's Sasha. In April 1968, the average house price in the UK was 3,595 Today it's $284,950 which is an increase of around 8,000% or 8.3% per year. In the latest available data from the Office of National Statistics, which is from 2020, the average UK household net worth was 32,500 and I Found some other data that says that the net property wealth for people who own their home was 24,000 on average in 2020, and 65% of people in the UK own their own home. So if you do the math, multiply those numbers together.

That means that 44% of the total wealth of the average household out of everything that the average household owns is tied up in their house. So you can understand why people in UK are so obsessed with house prices. But here is an interesting chart. This is the year-on-year increase or decrease increase in the house prices since 1968, and you can see a pattern.

First, there is a boom and bus cycle in house prices. Prices go up and then they stop going up. Growth goes to 0% or even goes below 0% like in 2008. But this graph shows something a lot more interesting.

The average rate of growth of house prices is declining the Peaks and the average on this graph is trending down. In fact, since January 2015, house prices have only gone up 23.9% which is 2.3% per year on average. This is actually significantly below the rate of inflation. So if you see your house as an investment over the last decade, your investment is actually losing your money in real terms because inflation is eating away at it.

If you compare it to the stock market and by the stock market I don't mean the London Stock Exchange I mean the real stock market like the S&p500 you can see that house prices in the UK didn't quite make the same return as investing in US stocks. and you too can invest in US Stocks using an investing platform like Weeble who are the sponsors of today's video. Weeble is the super popular investing app from the US that is now available in the UK You can invest in over 10,000 US Stocks with super low fees. Exchanging your money into Dollars cost just 0.35% but you only have to do it once when you deposit onto the platform and you can then keep your money in dollars afterwards and then the commission is only 2.5 basis points.

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In fact, rent prices have grown twice as fast as house prices. And here is what wages have done in the same time period. So this is really interesting because while house prices have grown, wages have grown faster than house prices. which means that on average.

and I know I know everyone has their own feelings. you live in London You have your own particular circumstances. Whatever. I Get it on average.

Houses are more affordable today than they were 10 years ago. Not less affordable. Houses are more affordable if you compare it to how much people earn. But here is a perverse bit of logic for you.

Now this one sounds simple on the surface, but it kind of messes with your brain. or at least it messes with my brain. now. buying a house might lose money to inflation and to the stock market and whatever.

And I know that there is this Army of Finance experts on YouTube who will tell you you should never buy a house. It's financially apparently a really bad decision because they show you some basic numbers you know back of the envelope calculations and they try to prove with numbers that is actually financially better to rent. Well, the best thing about buying a house is not the fact that house prices grow over time. The best bit about buying a house is that you don't have to pay rent.

Actually, maybe that's not the best bit. There's lots of good things, but that's an important factor because for most of us who don't own a house outright, we have a choice in life. You either pay rent or you pay a mortgage, or you live with your parents. Either way, if you want to live somewhere other than a cardboard box, you have to pay some money to someone in general every month.

And if you've owned a house in the last 10 years, then not only has your house gone up just 23.9% in value, but the rent that you are not paying has gone up over 50% at the same time. So you're kind of benefiting from both in a way. The slight problem with this is the fact that the interest rates have gone up massively in the last two years from 0% to 5.25% in the UK. And this means that right now, if you have a mortgage, when your fixed term runs out on that mortgage and you have to remortgage again, your monthly payments will be going up a lot.

In some cases, those payments are going up 50 to 100% depends on your specific circumstances. My mortgage, for example, is going up by 30% next month. But let's talk about the real problem here. A lot of people think of their house as an investment.

For most people, their house is their biggest investment. and the problem here is the reason you buy a house is so that you can live in it. That is why people buy a house because you have to have somewhere to live and you can either buy a house or you can rent. You get to make that choice if you take a step back.

What is the point of having most of your wealth tied up in your house? What exactly are you going to do with that wealth? You can't really do very much. If you want to access that wealth, you will have to sell your house which comes with a load of additional costs and you'll need a new place to live and have to pay for that somehow and so on. Now sure, you might be able to remortgage, maybe pull some Equity out of your house, but either you have to pay thousands and penalty fees or you'll have to wait 2 or three years until your fixed period runs out to do it. and even then you are going to be jumping through massive Hoops wasting huge amounts of time trying to explain to the bank why you want to pull Equity back out of the house.

Your house is a very liquid asset. some people will move into a retirement home when they're older and that house that you've been investing in for your whole life get sold off just to pay for that retirement home. What exactly are you investing in in that case? I Know there's a whole older generation that might get very offended by this, but we're seeing a seismic shift in the way that people think about this, in the way that people allocate their capital. In September 2007, just before the financial crash, the average house price in EK was 9,032 So in the last 16 or 17 years, the average house price was only going up 2.7% a year including the crash and then the massive rebound after and over the last 10 out of those years, that growth rate has gone down from 2.7% to 2.3% The popular narrative is that young people can no longer afford to buy a house.

Poor young people. It's so hard on them. They've never had it this bad. It's the worst it's ever been.

But look at the data. The median salary for Post University age young people in the UK today is 27,600 It's a bit lower than the mean because a few people go on to get very highly paid jobs in London and that skews the average. So the average house price is 285,000 The average wage is 27,000 That's a 10.5 times multiple. Nobody's going to give you a mortgage for that.

But if you're buying a cheaper house, not just the average. If you are earning maybe a bit more, maybe you have a second income. It is possible. Anyway, here is the same data from 2007, which is when I bought my first house.

the median wage for young people was 8,152 and the average house price was 190,000 And that is also a 10.5 times multiple. So the truth is, when it comes to affordability, the situation is pretty much exactly the same today as it was back then 17 years ago. I Know there was the financial crash and whatever and property price have gone up, but this metric has remained relatively flat. and the reason it's been flat is because house prices are ultimately going to be constrained by what people can get in terms of mortgages and how much they are able to pay per month for that mortgage.

And that ultimately is going to be constrained by their salary. Mortgages are constrained by how much people earn Before the '90s This was a bit different when Boomers were buying their houses in the 1970s. the average salary was1 ,200 and the average house was 4,700 So the multiple back then wasn't 10 something. it was less than four.

And of course, this older generation that bought their houses on the cheap and did not have to save up for a decade to get their deposit is the generation that has benefited the most from house prices going up because house prices went up like crazy in the 70s and ' 80s and suddenly out of nowhere, that entire generation of people have a house that is suddenly a very expensive asset. And so it's very natural that this older generation is obsessed with house prices. For young people buying their first homes today, the situation is somewhat different. There will be ups and downs, but affordability has been the limiting factor in house price growth over the last 20 years, which is why over those last 20 years house prices have grown less than the rate of inflation and this is a good thing.

It is indicating that despite the sensationalist headlines in the media, despite everyone being obsessed with this, the property Market in the UK is proving proving to be efficient. and I know that when you're young and in your first job, it's trendy to blame the world on everything. Blame everybody else for the fact that you can't afford to buy a house straight away. But the truth is, this has been the case for a while, and it was exactly the same pretty much 20 years ago.

Having said that, in 2001, 69% of people own their home with a mortgage or without. In 2011, just 64% of people own their home, and in 2021 in the latest census, that number is down to 62.5% So around 7% less people own their home compared to 20 years ago. Pretty big shift and the number of people who rent went up from 12% back in 2001 to 20% in 2021. So that's an 8% increase.

You can see that people are shifting from owning homes to renting, and it's a pretty big shift. It seems counterintuitive in the way, though, right? House prices are going up slower than in inflation, slower than wages. Why is it that less people are choosing to buy a house? Well, maybe the answer is the opposite of what the politicians and the media say. Maybe it isn't quiet as it seems.

Maybe the answer is lying hidden in plain sight right there in the very question. we live in a time that is very different to 50 years ago when Boomers were buying those houses for 4. Grand Travel is a lot more accessible. There's way more things that you can do more people work, and the careers of the people.

People that work are longer. People get married and have children much later in life than they used to. Technology has moved on to a point where there are a lot more things that people choose to spend their money on, especially when those people are young. We also now have investing apps and a record number of young people are contributing to those, which is great, but back in the 1970s there was no real way for a regular person with a small amount of money to invest their money well in anything except for a home.

This has changed in a big way and we are now seeing the shift in numbers. So if you're a young person, you can choose to rent. have none of the hassle of spending years saving for a deposit, putting all your money into this one dream. saving for the legal fees, saving for the stamp, Duty saving for the mortgage fees.

You don't have to worry about maintenance, all the other cost insurance, whatever of owning a house. Incidentally, here's a funny way to look at it. A lot more young people are now living at home in their homes that their Boomer parents bought back in the day for 4,000 But if you are a young person and you have this choice to buy to rent or to live at home, you can kind of see the logic in choosing not to make it some kind of a life goal, an ambition to pug most of your money in a house to work for years to save money, just so that maybe you'll have enough for a deposit for a house that you can just about afford that appreciates below the rate of inflation and Orders of magnet treats lower than well things like the stock market. Owning a home used to be this massive status symbol.

People were absolutely nutty about it, something that people aspired to, and many older people still see it that way. Some young people do not, and that's actually a good thing.