A change in sentiment

IveSeenTheLight

carolt wrote: »

1. Japan.

1. Can you please show an example? I know Japan has been the worst affected house prices in History, however it's good to argue with facts than just give an answer.
This graph shows that there has been slow annual decreases since 1992, where before that there was HPI


This report shows that there was an 8.62% inflation adjusted rise in 2007 and a 4.12% rise in 2006
http://www.globalpropertyguide.com/Asia/Japan/Price-History

This follows a significant recovery in Japanese property prices. There was a 8.41% rise during 2007 (8.62% when adjusted for inflation) in the six cities land price index (In Japan, land prices are used as a proxy for residential prices). This follows a 4.12% rise in 2006, a 0.89% fall in 2005. So after years of stagnation, the momentum has been up.

This states that the peak was from 1986 - 1990 and bottomed in 2003
http://en.wikipedia.org/wiki/Japanese_asset_price_bubble

This link shows a graph globally countries HPI and interestingly shows that Japan between 1997 and 2005 droped 28%. Remember above showed increases of 4.12% and 8.41% in 2006 & 2007
http://www.finfacts.ie/irelandbusinessnews/publish/article_10002284.shtml

This graph was made in 2005, however clearly shows that the average Japan house price is NOT less now than it was 25 years ago. Again remember the rises in 2006 & 2007





Can you show the Japan house prices of 1983 is higher than in 2008? This would back up the question of prooving that your belief that house prices can be lower in 25 years time. Remember that this is the worst example and way out of the margins seen throughout the rest of the global house prices.

My research and examples shown above discount your belief that Japan, the worst housing price bubble in global history, has house prices lower than they were 25 years preciously.

IveSeenTheLight

carolt wrote: »

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.Discounted in previous post) 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.

2. For me, there is two arguments here. If the property is for a residential home or if it is a BTL. Depending on what the property is purchased for I do think there are different answers.
I agree with you, that you have to weigh up the facts and figures and decide if it is the best investment for yourself. My personal BTL investments have worked out very well so far, but I do understand that this is largely due to the area I have bought in and that other areas the figures will not add up

carolt wrote: »

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)?

Again, it depends on where and what type of purchase you are making.
Personally I am not buying, as I am focussed on reducing the risk on my current investments.

You have to understand that a BTL investment is not based on capital appreciation, but on rent return. While I agree paying out less capital is beneficial, the rent received as a percentage of coving all outgoings and then providing a profit is the key factor. When those two lines cross, then it starts to be a worthwhile investment.

Having viewed quite a number of properties and have seen so many derelict empty properties, I would hazzard a guess that it is possible to find properties anywhere, even in the current climate.

It's not about timing, its about finding the right investment at any point of time.
Trying to time top or bottom of cycles may mean you miss out on a great oppertunity.

dopester

IveSeenTheLight wrote: »

Can you show the Japan house prices of 1983 is higher than in 2008? This would back up the question of pro[strike]o[/strike]ving that your belief that house prices can be lower in 25 years time.

I've not closely followed Japan and the property market there in recent years, but I did study aspects of the boom.

• Real estate in Tokyo rose in value by almost 80 percent from 1986 to 1987 alone.

• A single prefecture of downtown Tokyo was once valued higher than the whole of Canada. And this was even before the peak.

• The value of all property in Japan at the end of 1987 was "twice that of the value of all land and resources in the entire United States." [Gregory Clark - Economics Professor, Sophia University]. As Japan is less than 4 percent the land area of the United States, that would have put the unit value of Japanese property at approximately fifty times that of the United States.

• At the top of the bubble, Japanese property prices were worth somewhere between $16 trillion and $20 trillion.

And know this (from one of my finance books published in 1993), which details a number of credit crunches throughout history.... so not like something entirely new as current day mainstream press would have the sheeple believe.

Faced with falling deposits and shrinking capital banks have no choice but to curtail lending. Rules and standards can be waived or fudged but "real losses" can't be waived away. A banking system with impaired capital cannot lend on the scale to which its customers have become accustomed. A credit crunch is the inevitable result.

Also.. as an aside to Japan property, I'll include this section with stock market/asset boom....

In the early seventies the market value of IBM exceeded that of the whole Japanese stock market. In 1988, at the peak of its value, when NTT, the one-time Japanese telephone monopoly was privatized, it was worth more than the entire German stock market. In the classic assets mania, markets outrun any rational valuation based on yield or cash returns. Stocks and properties come to sell at absurd prices on the expectation they will appreciate to still more absurd prices.

And they do. They defy gravity, moving from one lofty new high to another, month after month, year after year, long enough to lure otherwise prudent people into mortgaging their gains to reinvest in the inflated assets on margin. Before the market can top, near enough everyone who could conceivably be drawn in must have already become a buyer. And debt levels supporting the asset prices must be many times higher than any that could conceivably be serviced out of the cash flow yielded by the investments themselves.

Then comes the bust. Just as everyone has come to count on the idea that the lofty asset valuations were permanent, there is a crash. This tends to happen fifteen to twenty years after the inital property rights shock.

IveSeenTheLight

Japan also had something like 567% inflation in 1945 and a decade of deflation recently.

It would seem that Japan has had the longest period of drops (around 13 years) but figures show that for 8 of those years there was a 28% drop (between 1997 and 2005), possibly due to your reported one year 80% rise but it doesn't show that in the economist graph



If your 80% price rise in 1986 - 1987 is correct and the graph above incorrect) then you may see house prices lower 25 years after this significant rise i.e. 2011 - 2012, however prices in the last couple of years have been rising (13% compounded in 2006 & 2007).

I still believe that while this is an indication of what might happen. This is the extreme case at its widest margin and not necessary an indication of what will happen here.
If you studied the Japanese boom, you will know that there were many factors affecting the market that is not the same here.

P.S. Have you got any links for your facts? Looks like good research reading.

dopester

IveSeenTheLight wrote: »

If your 80% price rise in 1986 - 1987 is correct and the graph above incorrect)

That last graph of yours I find a bit confusing to draw any sort of conclusion from (although I am sleepy).

As for my Japan/Tokyo data, it was drawn from a hard-copy finance book, and can not link direct to the exact source via the web.

However there seems to be many other sources on the net which support my data, but keep in mind I stated Tokyo.. and not the whole of Japan:

Japan in the World Economy
By Bela A. Balassa, Marcus Noland,
Institute for International Economics (U.S.)

After increasing by 3.2 percent in 1984, and 3.9% in 1985, residential land prices rose by 10.0 percent in 1986 and 76.8 percent in 1987.

IveSeenTheLight

dopester wrote: »

That last graph of yours I find a bit confusing to draw any sort of conclusion from (although I am sleepy).

As for my Japan/Tokyo data, it was drawn from a hard-copy finance book, and can not link direct to the exact source via the web.

However there seems to be many other sources on the net which support my data, but keep in mind I stated Tokyo.. and not the whole of Japan:

Japan in the World Economy
By Bela A. Balassa, Marcus Noland,
Institute for International Economics (U.S.)

Good little link, shows some interesting stuff.

Interesting that the house price to wages ration increased from 1.1 to 7.9 in metropolitan areas and 1.0 to 6.7 in the country as a whole.
The Uk as a whole is showing a ratio of 5.66 with other areas such as South East at 7.10, South West as 6.55 and London as 6.01

Tokyo, would be equivalent to the likes of London and the south East, whereby the prices are far in excess of the rest of the country.
Probably helps to explain why while Tokyo increased nearly 80% from 1986 - 1987, the corresponding increase for the whole of Japan was 7.6% and as such the near 80% increase in one year is not reflected in the graph I showed.

The info I pertained from the last graph was that between 1980 and 1992, house prices on average in Japan doubled, peaking in 1992 and shows a decline for the remainin 13 years of the graph till 2005 and showed from other links an increase in 2006 & 2007.

I used the graph to show that in Japan over the 25 years, property was still higher than the starting point of the 25 years to discount carolt's belief that Japan house prices are lower now than they were 25 years ago, although I concede that for the longest housing crash in history, it is close to being level and may be lower in the future after 25 years.

Still on the outskirt extreme though. Not to say it could not be overtaken by the US or elsewhere in the future.

IveSeenTheLight

neverdespairgirl wrote: »

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.
.

But I do and can agree that the credit crunch and other factors such as fuel / food inflation will play a factor throughout the UK. In effect, it makes the affordability ratio's worse throughout the UK, in all areas. I've never debated against this

I simply think that those that are worst affected by affordability will affect house prices the worst and the areas of lower rate of affordability will be affected the least.
Still affected, just affected less

IveSeenTheLight

neverdespairgirl wrote: »

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.

I fully agree and something that I will know in the near future having recently received good news
:T :T :T

But this is something we planned for, aimed to get our debts (was only mortgages)to a minimum before starting our family

It's also worth remembering that there will be couples without children that do not have the same childcare and associated costs.

And also that there will be single parent / income families.

The mortgage rate is set by the banks as an accepted risk they are willing to take. I'm not a bank but maybe as a rough guide a ratio of 3.5 x single or 5 x joint is a more realistic modern day ratio.

This will allow : -

• couple to pay off mortgages quicker before kids come along (i.e. not into holidays, expensive cars etc),
• then when kids come along the mortgage is reduced enough to cope with one income
• Single parent / income would still struggle to buy larger properties, but could do so with other incentives i.e. inheritance money, parents assistance, rent / purchase deals etc etc etc. ( I know not ideal for a would be homeowner).

It's also important to understand that not everyone could in the past afford to buy property, many good earners / savers practically had to beg to be able to get a mortgage.
Unfortunately and hopefully, people will have to learn to live within their means. If that means that they cannot afford to buy (so rent) or need to cut back in other areas to afford then so be it.
Nobody has a devine right to buy.

dopester

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.

Hope you're monitoring the unemployment situation as things have only just started to kick in.

A credit crunch has a tendency to squeeze many sectors of the economy. Not everyone who loses their job can walk straight in to another. Even Tesco can't give out jobs to everyone who has lost their job.

IveSeenTheLight

dopester wrote: »

Hope you're monitoring the unemployment situation as things have only just started to kick in.

A credit crunch has a tendency to squeeze many sectors of the economy. Not everyone who loses their job can walk straight in to another. Even Tesco can't give out jobs to everyone who has lost their job.

Increasing unemployment has nothing to do with the change in society to being two income families.

Unfortunate as unemployment is, even if it returns to thehigh or 3 million +, the majority of people in the UK will still be earning.

There is little , little old me can do about the UK employment rate.
I may be creating a position where I work as I have been approached to move to another company