Climbing the Property Ladder

kriss_boy

I think you are forgetting though that the term 'property ladder' evolved to describe how people moved from house to house gathering equity via mortgage repayments thus being able to afford progressively more expensive homes.

I dont think the term originated necessarily to describe the equity accrued from property increasing in value.

ss70

kriss_boy wrote: »

I think you are forgetting though that the term 'property ladder' evolved to describe how people moved from house to house gathering equity via mortgage repayments thus being able to afford progressively more expensive homes.

I dont think the term originated necessarily to describe the equity accrued from property increasing in value.

GO BACK TO THE MATHS, equity is larger yes, but the overall cost to change is much larger! Therefore no ladder.

princeofpounds

the overall cost to change is much larger! Therefore no ladder.

No it isn't. I demonstrated above the *real* cost to change is actually less, not more. The *nominal* cost to change is higher, the number you see, but that's a totally irrelevant figure in the long run. The 220 at the end period is worth less than the 200 at the start period, with the long-run assumption that inflation rates are equal in all asset classes.

I know that's a hard thing to get across for people who don't understand that fiat money is an asset that deflates in value, but 220 in 2010 (for example) is not necessarily more expensive than 200 in 1990. That's why you get paid 20k for your first job and your dad got paid 2k.

Anyone who looks at the nominal number is utterly and totally wrong, has no concept of inflation, the time value of money, the debasement of fiat currency or any number of important financial concepts. I'm staggered by the people who have posted in support of your posts but it just goes to show how people are generally quite illiterate financially-speaking.

For example, let's spread this over a longer time period.

A house costs £100 in 1880 (for the sake of example). You buy with a non-repayment mortgage and put in £10 equity.

In 1980, the same house costs £100000. The outstanding balance of the mortgage is still £90. Your equity is £99910. You own 99% of the property and have a 49.999% deposit on a house twice the size.

Under your system of thinking it was a stupid idea to buy the house because the mortgage on the bigger one would be totally unaffordable in 1980. That's true.... if you are erroneously thinking that you would still be paying that mortgage on a wage derived from the 1880s! But the fact of the matter is that over the long run the affordability wouldn't change all that much because wages do rise, and in the long run they rise inline with mortgage affordability and house price inflation.

If you really care about the mathematics qualifications,............chartered financial analyst. All top grade.

princeofpounds

This can happen over a long run of time as well.

The long run is a very specific construct in economic models. It doesn't mean 'a long time in human experience'.

Yes, over a specific period of time house pricing can out-inflate wages (like 98-08). Or wages can out-inflate housing (like 90-98). Interestingly, the main reason this happens is because of affordability changes due to interest rates (or liquidity more generally to be more precise). So if house prices out-inflate wages it is normally because the mortgages are more affordable and/or available, which mitigates the 'more expensive' effect.

This certainly means that the 'ladder' doesn't work for periods of time - again, as I have emphasised over and over it can just as easily be a 'snake'. I have just demonstrated how it works when it is working, which was most of post-WW2 Britain in the 20th century, and why everyone from the boomer generation perceives leveraged purchases to in fact be some kind of benign ladder. The Japanese would probably disagree on that one!

But over The Long Run inflation of wages and prices by definition must move together. Imagine prices that inflate 9%p.a. and wages that inflate 6%. Within 50 years all houses would be triple the original ratio in terms of price, within 100 they would be 16 times more expensive, within 150yrs they would be 66 times more expensive.... that is clearly ridiculous and if you take it to the mathematical limit (which is the long run, a very specific economic term) then the house price to earnings ratio would be infinity. That's reductio ad absurdum.

So wolfplayer, whilst everything you say is correct, it has absolutely no application to either a model of leveraged house purchases, or even to a long run simulation of the effects of such a purchase.

Fire_Fox

kriss_boy wrote: »

I haggle bills, making sandwiches for lunch at work, buying second hand a lot, shop online with vouchers and credit cards with promotions.

I complain a lot too, got vouchers from britvic when a vendy ate my money... :money:

I secretly love complaining.

ss70

princeofpounds wrote: »

chartered financial analyst.

Are you?:rolleyes:

In January 2007, the Trade Marks Registry, UK refused to grant protection to the CFA charter. Hence CFA charter holders cannot use their Charters in the UK. The word 'chartered' is restricted in the United Kingdom due to the association with royal charters.[26]


http://www.ipo.gov.uk/tm/t-decisionmaking/t-challenge/t-challenge-decision-results/o31506.pdf

kriss_boy

Fire_Fox wrote: »

I secretly love complaining.

Me too, free stamps from the post office, free sweets from haribo, a £10 voucher from ASDA because I spotted a typo on their tin foil packaging. You name it- Ive written to them about it!!!

I just complained to an online sports shop because I bought two badminton rackets and to make order up to £50 to get free postage I added a bunch of shuttlecocks.

The shuttlecocks arrived with an invoice saying the rackets were out of stock and the money for them had been refunded.

I love the irony of that- no rackets to hit the shuttles with!!!

princeofpounds

Are you?

Right... so when you can't even talk about the maths you take an ad hominem approach to arguing your case. Very grown up.

Actually, on the specific point you raise you are indeed correct to say that the CFA designation isn't a Royal Charter.

A royal charter is just a UK-specific tradition of monarchic approval dating back to the 13th century. The dispute is not a professional one but the matter of trademarks - CFA wanted to use the word 'chartered' as part of their trade mark, but under British law that is not possible without a Royal charter.

The problem is that CFA institute is not a British professional society. It is an American organisation, where the concept of Royal Charters is understandably... irrelevant. The queen is no more going to give a royal charter to CFA than she is to american accountants, or lawyers, or engineers.

It doesn't change the facts that the CFA qualification exists, that I hold a charter with them, and that it is the de facto gold standard professional qualification in the finance industry supported by more or less every major investment bank and asset manager, including my own. Nor does it change any of the material that is mastered as a result of passing the qualification.

So, you think you might want to return to talking about the actual point we are arguing? Or have you finally realised that there is a big and very fundamental difference between real and nominal prices that you totally fail to grasp with your objections?

ss70

princeofpounds wrote: »

Right... so when you can't even talk about the maths you take an ad hominem approach to arguing your case. Very grown up.

Actually, on the specific point you raise you are indeed correct to say that the CFA designation isn't a Royal Charter.

A royal charter is just a UK-specific tradition of monarchic approval dating back to the 13th century. The dispute is not a professional one but the matter of trademarks - CFA wanted to use the word 'chartered' as part of their trade mark, but under British law that is not possible without a Royal charter.

The problem is that CFA institute is not a British professional society. It is an American organisation, where the concept of Royal Charters is understandably... irrelevant. The queen is no more going to give a royal charter to CFA than she is to american accountants, or lawyers, or engineers.

It doesn't change the facts that the CFA qualification exists, that I hold a charter with them, and that it is the de facto gold standard professional qualification in the finance industry supported by more or less every major investment bank and asset manager, including my own. Nor does it change any of the material that is mastered as a result of passing the qualification.

So, you think you might want to return to talking about the actual point we are arguing? Or have you finally realised that there is a big and very fundamental difference between real and nominal prices that you totally fail to grasp with your objections?

Chartered Financial Analysts don't exist in UK, so why say you are one?

princeofpounds

Chartered Financial Analysts don't exist in UK, so why say you are one?

CFA trademark doesn't exist in the UK. I can assure you there are thousands of CFA charterholders in the city.

What you are saying is a like saying 'American law doesn't exist in the UK so why say you are an american lawyer?'.

If you want me to be really pedantic I can tell you I hold a charter from the CFA Institute, this having no connection to the Royal Charter system in the UK.

And still you choose to ignore any of the mathematics or substance of the argument. Can only assume you are more interesting in personal baiting than actually discussing anything, which makes a conversation kind of pointless.