A change in sentiment

brightonman123

i though it was shock, anger,pain, suffering, acceptance. then the 3part dvd special effects box?

Conrad

IveSeenTheLight wrote: »

As long as there is long term inflation, I do predict thet house prices in the long term will be higher than they are now.

Yes, but would you consider an inflationary return of money a worthwhile pure investment?

£100K that could buy 7 Mondeo's today, could be £200k in 15 years time but still only buy 7 Mondeo's as they too have double in value, so in effect no investment gain.

Surely investing is about beating those inflationary gains? That means timing is critical as by buying near a bottom (wait for jokes) should give you returns above those of inflation alone, ie, buying cheaper on the back of overshot poor sentiment.
This is the very reason I did not buy any further property from 2005.

Surely if your argument holds, every Wall St firm would simply be loading up on B2L but they dont, so....................

beingjdc

IveSeenTheLight wrote: »

It's basic rconimics that show that house prices will be higher in the future than they are now.
Simple inflation will ensure that house prices are pushed up.

Inflation isn't economics, it's politics.

I agree it's likely, but it's not inevitable.

carolt

IveSeenTheLight wrote: »

Is that the issue?

Most mortgages are taken over a 25 year period (better to pay off earlier though). I've not seen one point in history where the prices were less than they were 25 previously.
Now I'm not saying that its a good time to buy now, certainly may not be in some areas, but if you are buying now, you are securing that mortgage (debt) at that price while inflation should push the price higher as time goes by

1. Japan.

2. Yes, but all that money you are putting into paying off that fixed debt could be earning you more, potentially, elsewhere. So any nominal gain you (might) make on the value of your house over 25 years (or not - see 1.) is quite possibly far less than you would make if you took the same money you spent servicing the debt (let alone paying it off) and say, put it in the bank, invested in commodities, or whatever you think is the safest/most lucrative place for it.

Buying a house as a home may still make sense for some at this point in the cycle. But arguing that this is a good time to buy as an investment is just ridiculous to me.

How can it not make better sense to buy a year or 2 down the line when prices have fallen 10-50% (insert own figures here)?

poppy10_2

LOL, just had the GF's parents on the phone bleating at me about the fact that their "pension" (their two BTLs) is decreasing in value by £4000 a month, according to the latest media reports. Seems like the message is finally getting through.
These are the same people that have been pressuring me (via the GF) for years to "get on the property ladder before its too late" and berating me for wasting "dead money" in rent.

They haven't invested in a traditional pension at all, they were relying on the properties to see them through old age. They bought them over ten years ago, so even if they sold up now at a discounted price, they will still have made a massive profit; also the rent more than covers the mortgage, so they get a good monthly income. Don't have much sympathy, although of course I didn't say that to them!

lostinrates

poppy10 wrote: »

They haven't invested in a traditional pension at all, they were relying on the properties to see them through old age. quote]

Well, my parents did and have lost huge amounts in their pension collapse (my dad put 30% of his after tax salary away since he started work). The idea was they'd scrimp while they were wrking and raising me and then retire into luxury.....of course that hasn't happened now an although they'll have decent work pension still, its not going to be the luxury they had worked for. I can see why people who saw this happen woud put it in property.

We only started a pension in March and DH is making the minimum contribution ATM....because saving for the house seems more pressing

IveSeenTheLight

neverdespairgirl wrote: »

While I agree there will be regional variations, I don't think they will be quite as drastic as you think. The credit crunch affects every part of the country, and that will affect all housing markets, I reckon.

When the South East is showing a ratio of 7.1 and Scotland 4.68 in terms of House price to Earnings ratio, I think some areas will be affected far more.

It also important to consider if you are considering percentage drops or actual pound drops in each area.

Looking at Dorking (South East) The average house price in 2007 was 441,000. If the 7.1 ratio was to drop to a 3.5 ratio as openly discussed on here it means an approximate 50% drop or 220,000 price drop.

Compare that to Aberdeen (my vested interest) the Average price is 202,000
The same 220,000 drop would see you getting the property with an 18k rebate , ok seriously, if the ratio of 4.68 for Scotland applied to Aberdeen, this means it would need to drop 25% or 50,000 drop to meet the 3.5 ratio.

Surely you can see that when comparing the worst area (South East) against the best area (Scotland) in terms of affordability, that these areas are affected vastly differently. Incidently, in the last 20 years Dorking had a last house price crash drop of 19.73% followed by 20.58% rise and then 17.25% compounded drop while Aberdeen saw a maximum of 9.08% drop. Again showing how different areas are affected.

Now please don't quote me as saying I believe these drops are inevitable as I believe the 3.5 ratio is outdated given that we now live in a world where there are two incomes for a family where previously there was effectively only one income.

There are graphs out there showing that the UK average house price is approx 20% overvalued, therefore prices need to drop on average 20%, however as above, I believe some areas will take the most of this brunt while others will be far less .

neverdespairgirl

IveSeenTheLight wrote: »

Surely you can see that when comparing the worst area (South East) against the best area (Scotland) in terms of affordability, that these areas are affected vastly differently.

I agree with you there (I'm sure I've agreed with you in the past) that historic rises, prices, and the local employment market will all be relevant.

But I don't think it's quite as simple as you do - in that higher mortgage rates, more careful lending, and higher non-housing costs will have an impact everywhere.

IveSeenTheLight wrote: »

Now please don't quote me as saying I believe these drops are inevitable as I believe the 3.5 ratio is outdated given that we now live in a world where there are two incomes for a family where previously there was effectively only one income.
.

It's important to remember, though, that it's rarely double a single bread-earner. There are costs for childcare, and work-related costs (travel, smart clothes). There may also be extra costs overall as things are paid for or more paid for things when there isn't someone at home to take care of them. For example, cleaners, more expensive ready-prepared meals. etc.

IveSeenTheLight

Conrad wrote: »

Yes, but would you consider an inflationary return of money a worthwhile pure investment?

£100K that could buy 7 Mondeo's today, could be £200k in 15 years time but still only buy 7 Mondeo's as they too have double in value, so in effect no investment gain.

Surely investing is about beating those inflationary gains? That means timing is critical as by buying near a bottom (wait for jokes) should give you returns above those of inflation alone, ie, buying cheaper on the back of overshot poor sentiment.
This is the very reason I did not buy any further property from 2005.

Surely if your argument holds, every Wall St firm would simply be loading up on B2L but they dont, so....................

Using your example, If you bought a property for 100,000 (secured the debt) then in 15 years time it was worth 200,000, then yes, inflation is good for wiping out debt.
Your 100,000 debt would only be 50% of what the investment is worth, even without reducing the debt over the 15 years

I do however agree with you that if you are investing, the return should beat inflation.
I disagree with you to an extent on the reasons for getting a BTL. I have not bought for capital appreciation, I bought for rental return. As long as the capital has maintained with inflation (AT THE POINT OF SELLING) then the capital is secure and the purpose of BTL to provide a rental income can continue to better returns from banks.

IveSeenTheLight

beingjdc wrote: »

Inflation isn't economics, it's politics.

I agree it's likely, but it's not inevitable.

So the government set the inflation figure (and I know they set how it is measured), not the fact that prices increase / decrease.
why do the govt task the BoE to control inflation then if they politically they can set it