Quick Take
When evaluating the performance of assets or prices over time, it is crucial to differentiate between real and nominal values. Nominal prices show the face value without accounting for inflation, while real prices factor in inflation to depict the true purchasing power. This distinction has significant implications in inflationary environments.
For example, when analyzing historical UK residential property prices, it is important to differentiate between real and nominal values, which have followed diverging trends since 2008.
In real terms, accounting for inflation, UK house prices increased steadily from the 1970s until peaking in 2007. However, real prices have declined overall since 2008 in the aftermath of the global financial crisis, reflecting reduced purchasing power.
Real House Prices: (Sources: Nationwide Building Society, housepricecrash.co.uk)
In contrast, nominal UK house prices based on simple market values have continued rising despite brief dips during recess
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