Do You Expect House Prices To Increase In Over The Course Of The Next 12 Months?

nmiah786

Kenny4315 wrote:

What you are assuming is that there will be price growth over the next X years, my view is very clear if prices start falling the general population being totally ignorant of most financial matters, will begin to panic, as has been the case on the upward spiral, and on many a downward spiral both in housing and in other investment types. Lets not forget how many BTL's are remortgaging there main home to release equity to BTL in the first place, this is a high percentage particularly in the amateur BTL's with 2 or 3. Result they have not got debt of the BTL property to contend with they have also got the refinanced debt, and maybe an empty house with a saturated market. Result many will not be able to sit it out, if it falls 5% there will be widespread panic, and then it will be the case of how far it falls not whether growth will be 3% or not. Any investor who thinks that sitting tight on 3% potential pa, should be shot at dawn anyway, considering the hassle and risk involved in BTL. Tenant issues, non-occupancy, capital gains tax, etc, etc.

In short once the situation occurs, whenever the fall hits, the outlay previous should be totally disregarded from a pure investment perspective. All prior costs are sunk (in finance terms), only future costs and revenues should be considered, against any other alternatives (shares, deposits, bonds, opening a strip club for polar bears, etc).

I understand what you are trying to say however I have been waiting for the last three years for this "price crash" and as of yet it has not come to true....I wait in vain!!! Don't get me wrong I would appreciate a correction in prices as it will allow me to buy that bigger house that i've been looking for! No way will I pay the current prices for that extra space! Take this example: In 2003 the price of a 3 bed semi that I was looking for rental purposes was £200k. In 2004 the prices in the same area rose to £215k. Between Aug & Nov 2005 in the same street a couple of similar properties sold for £240k. Please explain that!

Also I would like to point you to a comment made by zeg2me on the previous page:

[QOUTE]Problem is with that view, is there are lots of people waiting for the market to fall before they can buy. Some of these people have large deposits waiting, so as soon as any falls do come around, these people will all pile in and buy, therefore propping up the market again.[/QOUTE]

What happens then! Plentiful buyers with huge deposits and "reducing" house prices! Will this not start a bidding war and increase this "reducing" prices!!!

Kenny4315 wrote:

In short once the situation occurs, whenever the fall hits, the outlay previous should be totally disregarded from a pure investment perspective. All prior costs are sunk (in finance terms), only future costs and revenues should be considered, against any other alternatives (shares, deposits, bonds, opening a strip club for polar bears, etc).

I dont see that situation happening just yet......or anytime soon....I'm sure I'm not the only one with that view!

Kenny4315

nmiah786 wrote:

I dont see that situation happening just yet......or anytime soon....I'm sure I'm not the only one with that view!

Well I am pretty certain that it will occur (house price correction). I have concluded that average Joe Public in terms of financial astuteness are like sheep and will follow the latest trend, whether buying or selling, or the latest panic buying or selling. This is true for most investments, shares and houses, bonds, etc. Check out the following FTSE crash, current rising house prices, late 80s boom and then fall, these are cases of sentiment/speculation outweighing financial sense.

Your not skint so why have you been waiting to buy ?? It's because you know as well as I that house prices are substantially over-inflated. Eventually the sheep will be led to the slaughter ! But unfortunately it will take some normal guys, unlucky to buy at the wrong time with them but who have had to buy out of need.

My last prediction on FTSE year end position was pretty accurate when market was just under 5300 back in early July I stated that it would be 5600ish at year end, it broke through this in the last couple of days trading of the year, finishing at 5618. The stagnation I predicted for the housing market is now being seen, my prediction is that some people will soon be waking up to some rather alarming news regarding house values which are going to seriously put the wind up them and then the inevitable downturn will start, slowly at first (as it is now) but speeding up as panic sets in. My house isn't worth £200k anymore its worth £190k, no its worth £185k, oooooohhh shiiiiiiiiiiiii !!!

Do not hold your breath on interest rate stability being able to bail these people out, there are too many uncontrollable factors, energy costs, growth in other economies (US, China, etc), Oil issues, UK tax issues. Even small increases in interest rates could ruin many people who have had a remortgage and spend spend spend mentality, or those who are over extending themselves.

Kenny4315 wrote:

In short once the situation occurs, whenever the fall hits, the outlay previous should be totally disregarded from a pure investment perspective. All prior costs are sunk (in finance terms), only future costs and revenues should be considered, against any other alternatives (shares, deposits, bonds, opening a strip club for polar bears, etc).

I have done multi-million pound investment appraisals, and am a qualified straight A grade chartered management accountant, I know what should and should not be included/excluded from investment appraisal decisions. Whether sentimental BTL's want to hope for the best is up to them, but I would not and have not !

Kenny4315

nmiah786 wrote:

So should the BTL investor sell in 5 years time he is left with either (£177k - 153k) = £24k or (£208k -£153k) = £55k before associated selling cost and tax.

B]

Maybe I have missed something but this looks incorrect ? Plus what about the opportunity cost of the deposit of £27k which has gone missing somewhere ?

nmiah786

Kenny4315 wrote:

Well I am pretty certain that it will occur (house price correction). I have concluded that average Joe Public in terms of financial astuteness are like sheep and will follow the latest trend, whether buying or selling, or the latest panic buying or selling. This is true for most investments, shares and houses, bonds, etc. Check out the following FTSE crash, current rising house prices, late 80s boom and then fall, these are cases of sentiment/speculation outweighing financial sense.

Your not skint so why have you been waiting to buy ?? It's because you know as well as I that house prices are substantially over-inflated. Eventually the sheep will be led to the slaughter ! But unfortunately it will take some normal guys, unlucky to buy at the wrong time with them but who have had to buy out of need.

My last prediction on FTSE year end position was pretty accurate when market was just under 5300 back in early July I stated that it would be 5600ish at year end, it broke through this in the last couple of days trading of the year, finishing at 5618. The stagnation I predicted for the housing market is now being seen, my prediction is that some people will soon be waking up to some rather alarming news regarding house values which are going to seriously put the wind up them and then the inevitable downturn will start, slowly at first (as it is now) but speeding up as panic sets in. My house isn't worth £200k anymore its worth £190k, no its worth £185k, oooooohhh shiiiiiiiiiiiii !!!

Do not hold your breath on interest rate stability being able to bail these people out, there are too many uncontrollable factors, energy costs, growth in other economies (US, China, etc), Oil issues, UK tax issues. Even small increases in interest rates could ruin many people who have had a remortgage and spend spend spend mentality, or those who are over extending themselves.



I have done multi-million pound investment appraisals, and am a qualified straight A grade chartered management accountant, I know what should and should not be included/excluded from investment appraisal decisions. Whether sentimental BTL's want to hope for the best is up to them, but I would not and have not !

Kenny

Thank you very much for updating us with your excellent credentials. Its great to know that and it definately adds weight to your argument and viewpoint.

It must have been also very satisfying knowing that your predictions for the FTSE came true, 18 points off but very accurate nonetheless. However, for someone who can predict the FTSE to such accurate precision, why can you not make similar predictions for the housing market. I would have thought that with your knowledge, expertise and financial acumen, to which you have made us aware of, you would have easily been able to do that to some degree of accuracy. Maybe you have and I have not come across it yet!!!

I also like the way you chose to answer/respond to certain stuff that supports your viewpoint yet you decide to ignore the other questions that I have posed to you.

Yes Kenny your right, I'm not skint but at the same time I'm not really rich either. Your also right in the fact that I do beleive that in the area that I want to buy to live in the prices are currently over-inflated. However, the reason I am not buying now is because of people like you. By people like you, I mean financial experts, accounting experts, investment experts and forecasting experts always suggesting to me that there will be a 20% decrease in prices SOON. I currently have a deposit of £70k and should I buy now and should there be a price crash as so many experts are predicting then I stand to loose all my deposit (my deposit represents 20% of the over inflated priced houses that I'm looking at). I do not posses your superior financial credentials and hence I would be foolish to go against the advice of these experts advicing me. Also I am currently fine living where I am, buying would mean a bit more luxury but I can "wait".


Quote:
Originally Posted by nmiah786

So should the BTL investor sell in 5 years time he is left with either (£177k - 153k) = £24k or (£208k -£153k) = £55k before associated selling cost and tax.


Maybe I have missed something but this looks incorrect ? Plus what about the opportunity cost of the deposit of £27k which has gone missing somewhere ?


Did you read all of the post fromwhich you got the quote??? If you had you would not be asking me that question!!!!

Kenny please do not take this post as an insult or anything derogotary(sp?) but you have expressed your views and I have expressed mine.

One final point, we can talk about house prices till the sun goes down and at the end of it you will have your viewpoint and I will have mine. You might be right as you are without a doubt far more knowledgeable then me. Only time will tell whether this saga of house price rise/fall will ever end!!!! :beer:

Kenny4315

nmiah786 wrote:

It must have been also very satisfying knowing that your predictions for the FTSE came true, 18 points off but very accurate nonetheless. However, for someone who can predict the FTSE to such accurate precision, why can you not make similar predictions for the housing market. I would have thought that with your knowledge, expertise and financial acumen, to which you have made us aware of, you would have easily been able to do that to some degree of accuracy. Maybe you have and I have not come across it yet!!! {quote)

Response : This is very simple, the reason why the FTSE can be predicted fairly accurately and in some timescale is that most FTSE investors (ie pension funds, etc), are managed by professional investors, they look at reasoned events and actions, ie if stock return is poor then sell and do something better, that's why stuff like profit warnings, etc are so important to share price, and other events of that nature. There actions are easy to predict they will not sit on a badly performing investment. The housing market is completely opposite, for various reasons, 1. people have to live somewhere 2. Exit and entry costs are high, 3. Many BTL/investors are amateurs with limited experience/portfolios 4. Mainly due to point 2 (and as you have suggested) people hope that somehow if things go belly up then they'll be able to sit it out, and eventually get a positive return again, rather than would be the case in a stock investor who would sell and move to another investment opportunity if returns were risky and poor.

Also the FTSE index has an absolute amount, the housing market seems to be open to numerous contradictory measures. All I know for sure is that the value of my house has fallen which means the value in my area must have, and also the value in surrounding areas and so on, as the market overall stays roughly in balance, after price rises/falls catch up with each other.

Incidentally I am not a FTB, and have had BTL, I am mortgage free, so I have nothing to gain by predicting a downturn other than if I want to move it will cost me less, in stamp duty, fees, etc. Also if a buy a more expensive house the gap will be less but this will not be staggering.

Quote:
Originally Posted by nmiah786

So should the BTL investor sell in 5 years time he is left with either (£177k - 153k) = £24k or (£208k -£153k) = £55k before associated selling cost and tax.


Maybe I have missed something but this looks incorrect ? Plus what about the opportunity cost of the deposit of £27k which has gone missing somewhere ?

QUOTE]

DId read your note, but in the second calculation you have not included the deposit of £27k. In your scenario of selling at £177k you have made a loss of £3k on purchase price (not profit of £24k), in second a profit of £28k not £55k. In both cases and in the sell price of £162k example (loss stated as £18k), the opportunity cost of the £27k has been ignored, which over 5 years would be a fair bit, even with safe investments.

The whole point is if BTL investors think sensibily then they would shift money out of housing while prices are good rather than have lots of risk for limited positive or even negative returns.

nmiah786

Kenny4315 wrote:

nmiah786 wrote:

It must have been also very satisfying knowing that your predictions for the FTSE came true, 18 points off but very accurate nonetheless. However, for someone who can predict the FTSE to such accurate precision, why can you not make similar predictions for the housing market. I would have thought that with your knowledge, expertise and financial acumen, to which you have made us aware of, you would have easily been able to do that to some degree of accuracy. Maybe you have and I have not come across it yet!!! {quote)

Response : This is very simple, the reason why the FTSE can be predicted fairly accurately and in some timescale is that most FTSE investors (ie pension funds, etc), are managed by professional investors, they look at reasoned events and actions, ie if stock return is poor then sell and do something better, that's why stuff like profit warnings, etc are so important to share price, and other events of that nature. There actions are easy to predict they will not sit on a badly performing investment. The housing market is completely opposite, for various reasons, 1. people have to live somewhere 2. Exit and entry costs are high, 3. Many BTL/investors are amateurs with limited experience/portfolios 4. Mainly due to point 2 (and as you have suggested) people hope that somehow if things go belly up then they'll be able to sit it out, and eventually get a positive return again, rather than would be the case in a stock investor who would sell and move to another investment opportunity if returns were risky and poor.

Also the FTSE index has an absolute amount, the housing market seems to be open to numerous contradictory measures. All I know for sure is that the value of my house has fallen which means the value in my area must have, and also the value in surrounding areas and so on, as the market overall stays roughly in balance, after price rises/falls catch up with each other.

Incidentally I am not a FTB, and have had BTL, I am mortgage free, so I have nothing to gain by predicting a downturn other than if I want to move it will cost me less, in stamp duty, fees, etc. Also if a buy a more expensive house the gap will be less but this will not be staggering.

Quote:
Originally Posted by nmiah786

So should the BTL investor sell in 5 years time he is left with either (£177k - 153k) = £24k or (£208k -£153k) = £55k before associated selling cost and tax.


Maybe I have missed something but this looks incorrect ? Plus what about the opportunity cost of the deposit of £27k which has gone missing somewhere ?

QUOTE]

DId read your note, but in the second calculation you have not included the deposit of £27k. In your scenario of selling at £177k you have made a loss of £3k on purchase price (not profit of £24k), in second a profit of £28k not £55k. In both cases and in the sell price of £162k example (loss stated as £18k), the opportunity cost of the £27k has been ignored, which over 5 years would be a fair bit, even with safe investments.

The whole point is if BTL investors think sensibily then they would shift money out of housing while prices are good rather than have lots of risk for limited positive or even negative returns.

Kenny

You have not read my post correctly, which proves my point about you which I mentioned earlier!!!!

I did not state that you are left with a profit of £24k, I just plain and simply said that you are left with either £24k or £55k. I purposely left the word "PROFIT" out of it. PLEASE READ POST CORRECTLY BEFORE MISQUOTING!!!!

Kenny4315

nmiah786 wrote:

Kenny4315 wrote:

Kenny

You have not read my post correctly, which proves my point about you which I mentioned earlier!!!!

I did not state that you are left with a profit of £24k, I just plain and simply said that you are left with either £24k or £55k. I purposely left the word "PROFIT" out of it. PLEASE READ POST CORRECTLY BEFORE MISQUOTING!!!!

Your are not left with £24k or £55k, as you have potentially got a liabilitity elsewhere of £27k (remortgage or whatever), or have used stored funds that you had in the first place of £27k, which were yours already, so I fail to see what point you were therefore making in your mail at all.

Why compare a £162k sale as per your example, with these if you are not comparing like with like. What was the point of the two other comparisons if not to compare it to the first example ?? In which you stated that it would be impossible to sell and cut your losses, and nobody would do it, with these illustrations to back up the point.

nmiah786

Kenny4315 wrote:

nmiah786 wrote:

Your are not left with £24k or £55k, as you have potentially got a liabilitity elsewhere of £27k (remortgage or whatever), or have used stored funds that you had in the first place of £27k, which were yours already, so I fail to see what point you were therefore making in your mail at all.

Why compare a £162k sale as per your example, with these if you are not comparing like with like. What was the point of the two other comparisons if not to compare it to the first example ?? In which you stated that it would be impossible to sell and cut your losses, and nobody would do it, with these illustrations to back up the point.

Kenny

ok maybe someone with your immense financial expertise did not understand what a layman like me had said. So let me try a different approach and see if your financial wizardry can decipher (deep down I think you understand but I can't prove that);

£180k property with 85% mortgage = £153k, 15% deposit =£27k

Falls in price by 20% = £162k

Sell @ £162k means £162k - £153 = £9K hence loss of £27k - £9k = £18k loss on deposit.

Assume prices rise by 3% p.a. for 5 years

Figure 1. on £180k it rises to £208k
Figure 2. on £162k it rises to £177k

Sell after 5 years;

Figure 1. £208k - £153k = £55k, take initial deposit of £27k away then your left with £28k
Figure 2. £177k - £153 = £24k, take away deposit from that then you left with £3k LOSS which is better then the £18k loss.

Hope you understand now!!!

Before you mention anything else please read the last paragraph in that post!!!! :wave:

Kenny4315

nmiah786 wrote:

Kenny4315 wrote:

Kenny

ok maybe someone with your immense financial expertise did not understand what a layman like me had said. So let me try a different approach and see if your financial wizardry can decipher (deep down I think you understand but I can't prove that);

£180k property with 85% mortgage = £153k, 15% deposit =£27k

Falls in price by 20% = £162k

Sell @ £162k means £162k - £153 = £9K hence loss of £27k - £9k = £18k loss on deposit.

Assume prices rise by 3% p.a. for 5 years

Figure 1. on £180k it rises to £208k
Figure 2. on £162k it rises to £177k

Sell after 5 years;

Figure 1. £208k - £153k = £55k, take initial deposit of £27k away then your left with £28k
Figure 2. £177k - £153 = £24k, take away deposit from that then you left with £3k LOSS which is better then the £18k loss.

Hope you understand now!!!

Before you mention anything else please read the last paragraph in that post!!!! :wave:

Excuse me but thats absolute nonsense ! If you can do better than fig 1 or fig 2 by sell and moving your cash elsewhere then that is what you should do. All sunk costs and revenues are irrelevant.

nmiah786

Kenny4315 wrote:

nmiah786 wrote:

Excuse me but thats absolute nonsense ! If you can do better than fig 1 or fig 2 by sell and moving your cash elsewhere then that is what you should do. All sunk costs and revenues are irrelevant.

Kenny

Sorry for talking nonsense!!! What do you expect from someone who does not posses the knowledge, expertise and first class credentials like yourself!! If I remember correctly you are retired now, are you not! I wish you all the best and I'm glad i'll never come across you in my professional life, clearly I'll be the one picking up the rubbish that your be throwing away!!! :beer: