Psychology of Home Owning

HAMISH_MCTAVISH

Harry_Powell wrote: »

Interesting how your figures only go to 2008, and so don't cover the house price crash?

We're not talking about BTL, we're talking about renting instead of buying your primary home, so any figures that include rental income as part of the return, are completely bogus.

No, the stock market returns are til 2008. So they missed out the worst of the stock market crash, which works in your favour.....:rolleyes:

The housing market return uses the long term average, which is still, as of 2009, inflation plus 2.9% per year. The long term inflation average is 3.9%.

The returns from rent MUST be counted. Because if you're not making it as a return by renting your property as a BTL, then you are saving it by living in it and not renting someone elses property. If it makes you feel better, you can subtract the 5% from the investors income instead.

It;s the same result..... Buying a house beats renting and investing by a significant margin. But here, I've swapped the rent cost around so you get it. I also forgot to include tax, so the renter is even worse off than I first thought.

The average return for the stock market from 1929 to 2008 was 8.9% per year. 4.6% in capital growth, plus 4.3% in dividends. MINUS 5% for rent, leaves a return of just 3.9%, BEFORE tax.

The average long term return for the UK housing market is inflation plus 2.9%. Average long term inflation (RPI) is 3.9%. Net return of 6.8%.

So in fact, housing beats stock markets by an average of 2.9% per year, when you include the costs or returns of rent.

the_ash_and_the_oak

A lot of this seems to hang on a) if mortgage interest is higher or lower than rent, b ) how much HPI we're factoring in, and c) how much rent rises we're factoring in

(all presumably for an intended duration of stay - rather than a flat 25 years? unless of course your next move is to the kind of place you will stay 25 years)


Which is good! I think the idea here is that buying is better than renting (or vice versa) depending on your view of the 3 factors above (in the timeframe of intended stay) - (could add in your views on future IR at time of refix in 2,3,5 years also if you wanted?)

Harry_Powell

HAMISH_MCTAVISH wrote: »

No, the stock market returns are til 2008. So they missed out the worst of the stock market crash, which works in your favour.....:rolleyes:

The housing market return uses the long term average, which is still, as of 2009, inflation plus 2.9% per year. The long term inflation average is 3.9%.

The returns from rent MUST be counted. Because if you're not making it as a return by renting your property as a BTL, then you are saving it by living in it and not renting someone elses property. If it makes you feel better, you can subtract the 5% from the investors income instead.

It;s the same result..... Buying a house beats renting and investing by a significant margin. But here, I've swapped the rent cost around so you get it. I also forgot to include tax, so the renter is even worse off than I first thought.

The average return for the stock market from 1929 to 2008 was 8.9% per year. 4.6% in capital growth, plus 4.3% in dividends. MINUS 5% for rent, leaves a return of just 3.9%, BEFORE tax.

The average long term return for the UK housing market is inflation plus 2.9%. Average long term inflation (RPI) is 3.9%. Net return of 6.8%.

So in fact, housing beats stock markets by an average of 2.9% per year, when you include the costs or returns of rent.

Which stockmarket are you talking about? Where are you getting these figures from?

If I buy a house, my investment return hinges on how property prices move in my area, indeed in my street. With more fluid investments, I can invest in the UK, EU, US, PAC rim, Asia, Australia, etc. etc. I can also balance my portfolio every 6 months and cash out of funds that are doing badly and move into funds that are doing better (all for zero cost, I might add). If your house investment isn't doing well, you can move to a better performing area but it'll cost you £10k to do it, take 3 to 6 months or more and cause untold stress and pain. You certainly can't move your property out of the UK and into a country that is booming.

I think though that we have a complete impasse on this topic, so I'm going to leave it there. Thanks for the input, it's been interesting. Good luck with your HPI.