Same price = zero devaluation - WRONG
09/05/09 01:25 Filed in: Personal
Just a minor rant-ette this evening on the subject of those “so called” zero devaluation purchases suggested by everything from Bargain Hunt to bloody Autocar.
I was just reading a little article that suggested that a car that cost £70,000 brand new 20 years ago has not devalued because it’s now work £80,000. Palpably this is the most stupid thing I’ve ever heard. But it might not be quite so obvious, so let me explain using a very, very simple example.
In 1989 it was possible to purchase a brand new, modern looking three bedroom house in the Astley area for around £80,000. Today, a similar house is likely to cost you £170-£200,000. So has Astley because the Riviera? No. Has the cost of bricks sky rocketed in the last 20 years? Nope.
Fact is, that £80,000 in 1989 is the equivalent of £170,000 in 2009 because of inflation. Or to put it another way, the purchasing power of the £1 has decreased by 50%.
Put this into perspective and the once £70,000 Lancia Hyena would cost the equivalent of £150,000 in today’s terms. The fact that it now costs £80,000 actually identifies that the car has actually lost 50% of its actual value; and not retained the 100% as claimed in the Autocar article.
If you purchased a car for £50,000 in 1989 and it is not worth £100,000 today, then you have a car that’s retained its value. Anything more than the £100,000 is an increase in value.
Don’t believe me? A loaf of bread in 1989 would set you back around 40 pence. Today the price of a loaf of bread is around the £1.20 mark.
Its a similar argument to those who purchase a house and in 30 years time think they’ve made a fortune because it was £50,000 new and now costs £300,000. Sadly, they’ve not realised that total cost, when you include currency devaluation.
I was just reading a little article that suggested that a car that cost £70,000 brand new 20 years ago has not devalued because it’s now work £80,000. Palpably this is the most stupid thing I’ve ever heard. But it might not be quite so obvious, so let me explain using a very, very simple example.
In 1989 it was possible to purchase a brand new, modern looking three bedroom house in the Astley area for around £80,000. Today, a similar house is likely to cost you £170-£200,000. So has Astley because the Riviera? No. Has the cost of bricks sky rocketed in the last 20 years? Nope.
Fact is, that £80,000 in 1989 is the equivalent of £170,000 in 2009 because of inflation. Or to put it another way, the purchasing power of the £1 has decreased by 50%.
Put this into perspective and the once £70,000 Lancia Hyena would cost the equivalent of £150,000 in today’s terms. The fact that it now costs £80,000 actually identifies that the car has actually lost 50% of its actual value; and not retained the 100% as claimed in the Autocar article.
If you purchased a car for £50,000 in 1989 and it is not worth £100,000 today, then you have a car that’s retained its value. Anything more than the £100,000 is an increase in value.
Don’t believe me? A loaf of bread in 1989 would set you back around 40 pence. Today the price of a loaf of bread is around the £1.20 mark.
Its a similar argument to those who purchase a house and in 30 years time think they’ve made a fortune because it was £50,000 new and now costs £300,000. Sadly, they’ve not realised that total cost, when you include currency devaluation.
