England is especially a case study on inflation. London is ranked as the second most expensive city in the world, after Moscow . New York by comparison is 16th most expensive. Everywhere in England costs seem astronomically high from rising costs.
Fortunately for us we hold pound denominated investments so were not converting dollars to buy appreciated pounds. Even holding pounds, prices were high. Take for example the four pound cup of coffee I enjoyed. Even at four dollars that’s a lot for one (no refills) cup of coffee. Yet if I convert those pounds and look at that cost of a cuppa in dollars it’s over eight bucks! This is perhaps the most expensive just plain coffee I have ever consumed. This was a good coffee, yes served in elegant surroundings. Yet it’s also a lesson on inflation.
Steve, our man in Ecuador , is English and is on vacation visiting his father there. Steve agrees with me about high prices and wrote:
“ Gary , in England you NEED to accumulate some sort of wealth just to live. I used to ride to Fareham town centre (a 10 minute journey) on the bus 35 years ago for 3 OLD pence – now it costs £1.70 ($3.40). Three old pence was the equivalent of 1.25 new pence. I make that a 135 times increase in 35 years. I look around and most people look content and COMFORTABLE, but so do drugged geriatrics. The headline today in the newspaper “Is TopShop losing its Touch?”; TopShop being a large chain of fashion stores. I can’t help smiling. In Ecuador this would be ludicrous to most people – they could care less if a store is losing sales. They do care about family, friends, getting an education, getting and keeping a job and then having as good a time as possible with the money left over. And getting to see friends and family is still a lot cheaper when you can travel an hour on the bus for a dollar or less! I can see no value in living in the UK apart from the free healthcare (paid with by higher taxes) yet I do see a whole lot of value in Ecuador and other Latin countries. Steve”
High prices begin with real estate and transportation. Petrol (gas) as mentioned is about $7 a gallon. Cars are highly taxed. The trains are not cheap. (More on this in a moment.)
A recent BBC article entitled “House prices to breach £300,000” shows the average house price in the various regions of the country and forecasts where prices are headed.
2012 HOUSE PRICE FORECAST
North East – £187,200 (£143,800)
North West -£204,400 (£157,700)
Yorkshire & Humber – £211,000 (£159,400)
East Midlands – £236,300 (£166,300)
West Midlands – £236,700 (£175,400)
East – £340,200 (£224,200)
London – £478,300 (£322,500)
South East – £392,900 (£259,700)
South West – £316,300 (£219,400)
Remember multiply everything by two + to get US dollar prices. In other words, the average London how price is already $645,000 and is headed towards $956,300. AND THIS IS THE AVERAGE!
The source of these forecasts is Oxford Economics, which states that if current trends continue these forecast prices will be reached. This is a big IF, yet even if prices were not to rise at all they will remain staggeringly high.
Merri and I could not help ourselves however. We are investing in a bit of property in Leeds . Those who have been reading our messages for long know that we always look for value and try to spot contrasts, distortions and trends. Prices in England appear sky high, yet Leeds prices (in Yorkshire) are half those in London . That’s a contrast but when our son, Jake, helped us learn that Leeds has among the highest percentage of new population and new jobs in the UK in recent years, I see a distortion. Either London prices will drop to meet Leeds or prices in Leeds will rise.
I hate buying at silly prices, but our bet is that there prices will rise. In these times of inflation what is silly? Where do the rises stop? I bought my first house (5 bedrooms) in West London for $35,000 and sold it four years later for $215,000. Prices seemed silly and too high. A quick look on Google finds that owners of a five bedroom house just round the corner are now asking over $3 million dollars!
We are buying a Leeds property at the low end of a steamy market. This often makes sense. If prices rise, you have the highest upside potential. If prices crash, you can still probably exit as sellers in the high end sell out (at a loss) to step down. We did this in Naples , Florida where prices were almost equally ridiculous a few years ago. We came out of the crash unscathed and with good profits.
Usually the high and low end are okay. It’s the middle that often gets ruined in a crash.
So we’ll see. If the investment does not work out, the tiny shopping village (Morely) right next door (still without a Starbucks) is so pleasant that it would make a modest drop palatable.
On the subject of Starbucks let’s go back to trains. One goal on our visit was to never have a drink at Starbucks. This is becoming increasingly difficult in England . They have shops everywhere.
I was walking through Leeds train station and thought “at least one place Starbucks will never invade are yee old English train stations!” Ten seconds later I saw a Starbucks in the station. Yuck!
Some things never change though, such as the British rail system mess. British Rail has always been screwed up. Now it’s just screwed up and expensive. Figure this out. We traveled from London to Leeds . Train fare would have been $320 for a 2 ½ hour trip, if the train ran on time and actually arrived. The bus (which was on time to the minute) was $36. We took the bus which was a pleasant four hour trip. The train from Cheltenham, Gloucestershire back to Manchester (our departure point for the US ) was over $300. A car and driver was $240! We took the limo, were met on time at 6 a.m. by a prompt and excellent driver and were delivered directly to the terminal!
This is the crazy type of event that takes place with inflation. Others even crazier make Starbucks one of the less expensive places to buy coffee. We’ll see why tomorrow when we really look at that eight dollar plus java and get into inflation and the lessons England can tell.
Until then, may your trains to wealth, fulfillment and adventure never be derailed.
We look at ways to beat inflation at our next two International Investing and Business Made EZ courses.
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