The benefit of long-term house-price growth

Generali

http://property.timesonline.co.uk/tol/life_and_style/property/buying_and_selling/article5667597.ece

Research conducted by the estate agent Savills for Bricks&Mortar has found that nominal ten-year house price growth over the past 40 years has never been negative. What this means for the statistically uninitiated is that, based on average figures, if you bought a house in the past 40 years and kept it for ten years, you would not have lost money on it over the whole period.

My belief is that the UK will see her first 10 year period where house prices fall rather than rise before too long.

purch

if you bought a house in the past 40 years and kept it for ten years, you would not have lost money on it over the whole period

What if you had a Fire and the house was destroyed, and you didn't have any Insurance ??

My belief is that the UK will see her first 10 year period where house prices fall rather than rise before too long

I echo that emotion !!

Cleaver

Generali wrote: »

http://property.timesonline.co.uk/tol/life_and_style/property/buying_and_selling/article5667597.ece



My belief is that the UK will see her first 10 year period where house prices fall rather than rise before too long.

Every rational bit of me agrees with you. I look at the stats, the massive rise we've seen, the general state of the economy, unemployment and credit not being offered and my brain says, yup, in 2017 house prices will probably be around the same, or a bit less than they were in 2007.

But there's a nagging bit of me (and it was partly summed up by a post by Conrad a couple of days ago) that thinks that maybe people will start buying houses again soon as they'll just get irritated by the whole thing. We have short memories.

The next six months will be very interesting to see which is correct. I think the former, but you never know.

epz_2

There was me thinking somebody was going to explain why rising house prices are a good thing and were of benefit to the general economy.

Generali

Cleaver wrote: »

Every rational bit of me agrees with you. I look at the stats, the massive rise we've seen, the general state of the economy, unemployment and credit not being offered and my brain says, yup, in 2017 house prices will probably be around the same, or a bit less than they were in 2007.

But there's a nagging bit of me (and it was partly summed up by a post by Conrad a couple of days ago) that thinks that maybe people will start buying houses again soon as they'll just get irritated by the whole thing. We have short memories.

The next six months will be very interesting to see which is correct. I think the former, but you never know.

Short term, low interest rates could provide a fillip to the market. Longer term, I just don't see the lending available to keep house prices where they are now, let alone where they were a year ago.

Also, there will be a lot of people having their pensions ravaged right now. When they retire they may well wish to move to somewhere cheaper to realise some cash from the house. I think that's going to keep downward pressure on house prices for many years.

epz wrote: »

There was me thinking somebody was going to explain why rising house prices are a good thing and were of benefit to the general economy.

I'm not a miracle worker!

abaxas

What about the money people have invested in their homes? For improvements etc.

The standard of fitting in most houses is much higher now than it ever was.

mower5

Generali wrote: »

Short term, low interest rates could provide a fillip to the market. Longer term, I just don't see the lending available to keep house prices where they are now, let alone where they were a year ago.

Also, there will be a lot of people having their pensions ravaged right now. When they retire they may well wish to move to somewhere cheaper to realise some cash from the house. I think that's going to keep downward pressure on house prices for many years.



I'm not a miracle worker!

Is there an aguement to say that the whole asset bubble has been caused by the baby boomers? that larger generation has inflated the bubble inadvertently becase there are more of them buying up limited assets such larger 4/5 bed housing and the worries over retirement and poor returns from pensions fueled the BTL rush of the last 5 years.
Any guesses as to what happens in the next 10 years beyond stagnant hpi? Will the boomers on mass want to follow previous generations and retire to blue rinseshire on the southcoast and Devon?

WillowCat

I bought a small one bedroom flat in 1999 for £36,000, which had been bought ten years earlier for £48,000. Bear in mind too the high inflation over that period, they lost tons of money.

So I think while the ten year rule may prove correct for most people, you really need to be aware of the type of property which can be a problem (no-one was interested in small one beds during the nineties - why bother when a house was easily affordable.)

Generali

mower5 wrote: »

Is there an aguement to say that the whole asset bubble has been caused by the baby boomers? that larger generation has inflated the bubble inadvetently becase there are more of them buying up limited asssts such larger 4/5 bed housing and the worries over retirement and poor returns from pensions fueled the BTL rush of the last 5 years.
Any guesses as to what happens in the next 10 years beyond stagnant hpi? Will the boomers on mass want to follow previous generations and retire to blue rinseshire on the southcoast and Devon?

FWIW, my predictions are:

- Higher long-dated Gilt prices (increased demand due to more annuities)
- Lower share prices due to pensions being shifted from equities to annuities. I think this will make higher yielding stocks good buys especially if you're buying for the income rather than to sell.

Ultimately, lots of people who think they have good pensions, haven't. Top of that list is Civil Servants but lots of people in private final salary schemes are going to be sorely disappointed too.

This is going to be the unaffordable bail out - the Civil Servant pension scheme has unfunded liabilities of GBP 1,000,000,000,000. Private final salary pension schemes have deficits of hundreds of billions of pounds and are still making 'optimistic' assumptions about death rates (that is optimistic from the company's point of view, not the pensioner's!)

It's going to be a massive bun fight. People who have been promised pensions will want to receive them but the money isn't there. So who's going to pay? The UK can't afford to pay for the promises that have been made. If it's any consolation, many European countries are in a worse position. I suppose it might ease the pain of having to work well in to your dotage knowing that the French are suffering even more.

vivatifosi

I'm a trustee of a Final Salary Pension Fund (Defined Benefits/DB) Generali and this is what keeps me awake at night.

Even for our experts, this is an unprecedented time and they can't answer all of my questions. We're in better shape than many as we are already a closed scheme and have a good proportion of our funds out of equities, but I still have concerns about DB schemes in general, for example:

1. What if the bank goes bust? This question is not imho being adequately addressed at the moment, particularly if you have money in such and such a fund.

2. Many DB funds are still suffering from previous regulatory tinkering and were in deficit prior to the current market falls. For example, we have to be better funded due to the way that the amount of money in the scheme is accounted for moving away from FRS17 (not that this is a necessarily a bad thing), however it leads to potentially far higher payments into the government safety net (PPF) at a time that schemes can least afford them.

3. For those companies with an overseas parent (particularly non-EU domiciled), the question as to what will happen to the fund if the plug is pulled on the UK organisation is still not adequately answered.

4. Many trustees give their time for little or no reward. If the regulatory/knowledge burden on trustees increases at the same time as the risk they are taking in 'trying to do the right thing' then there is a real threat that many will pull out.

And that's just the issues that come to mind now, if I sat down with a piece of paper then I could give you many more concerns and in a greater order of priority, but hey, its the weekend and that would be way too depressing!

Generali

vivatifosi wrote: »

I'm a trustee of a Final Salary Pension Fund (Defined Benefits/DB) Generali and this is what keeps me awake at night.

Even for our experts, this is an unprecedented time and they can't answer all of my questions. We're in better shape than many as we are already a closed scheme and have a good proportion of our funds out of equities, but I still have concerns about DB schemes in general, for example:

1. What if the bank goes bust? This question is not imho being adequately addressed at the moment, particularly if you have money in such and such a fund.

2. Many DB funds are still suffering from previous regulatory tinkering and were in deficit prior to the current market falls. For example, we have to be better funded due to the way that the amount of money in the scheme is accounted for moving away from FRS17 (not that this is a necessarily a bad thing), however it leads to potentially far higher payments into the government safety net (PPF) at a time that schemes can least afford them.

3. For those companies with an overseas parent (particularly non-EU domiciled), the question as to what will happen to the fund if the plug is pulled on the UK organisation is still not adequately answered.

4. Many trustees give their time for little or no reward. If the regulatory/knowledge burden on trustees increases at the same time as the risk they are taking in 'trying to do the right thing' then there is a real threat that many will pull out.

And that's just the issues that come to mind now, if I sat down with a piece of paper then I could give you many more concerns and in a greater order of priority, but hey, its the weekend and that would be way too depressing!

You should check with the bank whether the fund's cash has 'client money' protection or whether the cash just goes into the general pool of funds. You may well find that cash protected under client money rules won't attract interest so there is a cost to having that protection. A price worth paying IMO. You could always invest any cash in short dated gilts/treasury bills which are about as good as cash anyway.

If I was a pension scheme trustee I'd be very worried about retrospective rule changes foisted by a populist Government on trustees to punish pension scheme shortfalls. Perhaps I'm just paranoid.