Property !!!!!! A Nation Hypnotised? Blog Discussion

whambamboo

ReportInvestor wrote:

By wage increases above the level of inflation?

My partner - who has not changed jobs - started on £300 pm net & looks on course to eventually retire on £3,000 pm net assuming 3.5% wage inflation. My mother starting saving for her house deposit from £25pm.

Rents will go up, perhaps tracking wage inflation rather than inflation. Mortgage payments may not go up. [I agree with you that if they do rise significantly it's a different story.]

Yes, yes that's true, rents will rise, but so will stockmarket investments and pretty much anything else.

The problem is that getting wage-linked income from rent at the moment is VERY EXPENSIVE. Much too expensive. The premium you pay is too much.

At the moment many houses are yielding 4-5% GROSS, less net.

This is just pathetic as an investment. Rents will rise with wages, as they have done in the last few years, but house prices have gone up far faster than wages, when logically they too should follow wages. So you are paying too much for the income. It's like seeking out bonds paying 2.5% - they will be worth less than their face value because the yield is so bad. Same thing will happen to property.

So the implication is the the capital value will underperform relative to rents, as both rents and prices shoudl go up at the same rate, but with prices clearly having risen faster you are going to lose a lot of money in the next few years as the price/rent ratio restores itself, and with low wage inflation, rents aren't going anywhere, so house prices must fall.

The only conclusion is that unless you can buy the house at a fair price, rather than a vast premium, it's not a good investmenet.

busabus

Well, back to the original question: Property !!!!!! A Nation Hypnotised?

I agree.

The amount of times I hear people saying things like "You need to get your first step on the property ladder", "If you're renting you're just throwing money away". They've become catch-phrases that people spout without bothing to think about. They may as well be saying "Am I bothered" or "To me, to you".

I don't necessarily think it's the fault of property programmes, they're always quick to cover themselves and often say you should not rely on house prices going up. Also I've seen plenty of cases where it doesn't work out and the person's returns are pitiful. (My only nag is the constant repeats I can sit there watching thinking, that's amazing, then look at the copywrite notice and it was in 2003!!) It's a social fad, or herd mentally, like now re-using shopping bags is cool.



As to the other discussions, I thought back in 2002 that there was no way house prices would continue to go up. However that didn't stop me buying a flat because the costs of renting were far higher than the costs of buying - for this specific flat in this specific area at that specific time. Over the years my income has gone up very nicely, I'm living with a partner who has an income, and yet to buy a larger property I'd have to move to a rough area. The myth of being on the ladder and you can ride the fluctuations safely is wrong. As the prices rise the rungs get further and further apart. So I'm now renting a bigger place because it costs me less than to buy, every month I'm putting money in the bank, and I'm happy. Can someone find fault with that?! If in the future it's cheaper to buy, then that's what I'll do, on my terms.

What makes me worried is that people in my age bracket, and people I care about are getting sucked into this. They worry about not having property, and start stretching themselves. For example not being able to afford a phone line! Or mortgages guaranteed by their parents - that seems madness, if the bank doesn't think you're a good bet then chances are...

Anyway, "spend what you can afford" and "do your own research", my two catch-phrases

F_T_Buyer

ReportInvestor wrote:

Rents will go up, perhaps tracking wage inflation rather than inflation. Mortgage payments may not go up. [I agree with you that if they do rise significantly it's a different story.]

What the "house price crash" brigade perhaps don't factor in, is that home ownership in this country has risen to over 70%, but why shouldn't it fall back to nearer 50% over time?

So what has happened to rents over the last ten years? They have risen, sure, but they have risen a very small amount compared to peoples income; and this is during a booming decade, where employment is going up etc etc...

What do you think will happen when a recession comes? Or this unemployment increases for a few more years. What about people having less money in their pockets?

A massive risk to take on, especially as the return is so low compared to price.

livelongand_prosper

this has come at the right time, decided to have a life change and put our house on the market. Surprise surprise it sold in the first week (we were banking on in about a year!!!!). We won't have enough to 'live the dream' but thought we might do the property thing and buy and sell every 6/8 months and try and raise some funds for 'the dream'. After reading this am feeling despondent.. and worse worried that in 8 weeks we will be homeless!!! give us some encouragement, how can we make money from the proceeds of the sale (need to do it in about 5 years... not spring chicks us). Martin you are my financial guru ... in this house you word is law!!!

Dillops

NeilW wrote:

At the moment renting is the place to be. You can have your pick of some very nice houses and it will cost you a hell of a lot less renting the bricks than it will renting the money to buy the bricks. And somebody else has to pay if the boiler breaks down.

NeilW

This is not my experience. I moved from rental to buying my first property in SW London at the beginning of 2006. The interest on my mortgage is approximately 6% lower than I was paying in rent. Plus my new home is an improvement on what I was renting.

PS. my boiler hasn't broken down yet

kopicbloodaxe

Just wanted to add a "me too" to this thread. A year ago I sold my house and moved my family into a rented property nearer to friends and family. Doing this enabled me to pay off a third of my other outstanding debts and we now have quite a nice house in a prime location near to good schools and less than five minutes walk from a coffee shop... There's no way I could have afforded to buy a similar property in a similar location and still be able to pay off what I owe on debts and put food on the table. For us, getting off the property ladder and renting was absolutely the right thing to do. Now that my wife has returned to work we can even afford to save up for a trip to DisneyWorld in Florida next year. We couldn't have done that if we had bought instead of rented.

Once outstanding debt is cleared (or very nearly) then we can review our position and decide if we then want to buy or carry on renting.

So, the whole debate is really "Horses for courses". There isn't a one-size-fits-all option in the mortgage or rent saga.

We really MUST, as a nation, get out of the habit of spurting nonsense like "renting is dead money"!

Oh, and one more thing... To the people who talk about wage rises etc... Rubbish! I haven't had a pay rise in years. I suppose it's my fault for working for a major international computer manufacturer who seems intent on sending jobs to the cheapest labour force. In real terms, taking inflation into account, my salary has a lot less buying power than it did five years ago. Another reason to get off the property ladder.

ReportInvestor

F_T_Buyer wrote:

So what has happened to rents over the last ten years? They have risen, sure, but they have risen a very small amount compared to peoples income; and this is during a booming decade, where employment is going up etc etc...

It would be useful to have some figures on this. Anyone?

[Buy-to-let is] A massive risk to take on, especially as the return is so low compared to price.

Index linked gilts have plumeted in price recently.

Have you got any alternative investments [to buy-to-let property] that will give a rising yield and not be hit by unemployment or economic downturn?

Please PM me first so I can pile in before anyone else on this board :rotfl: .

daviesm001

I think there are two issues here that are being mixed up.

The question depends on whether you're buying your own home or buying to invest. Also, a great many people think they are buying to invest but what they're doing is really just speculating. It's these speculators that can come a cropper because they don't research their market and they don't have more than one exit strategy and they rely only on the market rising in order to make their money.

If you're buying your own home, the only time it really matters if prices drop is if you're in the position where you HAVE to sell. This is when you get motivated sellers, such as those who have to relocate or those who have to sell due to divorce, etc. If you find you have to sell when the market has dropped, it's a problem.

If people are selling because they can't afford the mortgage, then Martin is correct in that they've overstretched themselves, so affordability is the issue. Remember, they still need a place to live and so will have to rent from those of us who provide rental properties. Fixing the interest rate now would, therefore, be a good idea as interest rates are very low. If they stay put for 25 years, I cannot believe anyone seriously thinks that here in the UK (an island with a growing and importing population - supply & demand) prices will be less in 25 years than they are today!!!

For those of us who are seriously investing, again, the only time a price drop matters is if we sell. Most serious investors are in the business for the long term so why would we want to sell. The amateurs end up having to sell because they can't rent. Why can't they rent? Because they bought the wrong property in the wrong location for the wrong price and skimped on getting the property training to run property as a business (one of or a combination of these factors). Falling property prices do not mean falling rents, often the reverse.

If prices were to drop, even though I have a large portfolio, I would be scrambling to raise as much as possible to buy as much as possible at the lower prices. Most people have the mentality the wrong way round, same as in the stock market, they buy high, panic at a glitch, and sell low. However, if you're in this business for the long term, which everyone should be as property is an illiquid asset, it doesn't matter so much because 20 years from now, do you really think prices will be less?

I recall in 2003 there was a professor at (I think) Warwick university who was urging people who owned property to sell and rent instead with a view to buying back in when his predicted price crash happened. When I give talks on property investment I occasionally meet people who followed his advice and are devastated about how much they've lost.

As Martin says, nobody has a crystal ball but we need people to stop the kneejerk reactions and take a long term and considered view.

Maria Davies
https://www.womeninpropertyinvestment.com

whambamboo

ReportInvestor wrote:

It would be useful to have some figures on this. Anyone?

Well, considering you seem to think it's such a great investment, I would have thought you'd have done your own research before investing.

I believe you will find this graph quite instructive

http://www.biscithome.net/cgi-bin/sitebuilder/view_image.pl?site_id=12982;picture_id=1364

Clearly rental yields are at their lowest level ever. This is relative to asset values. In the last few years rental yields have risen above the retail price index but below wages, which is not a good rise at all.

Given that yields are so low, it implies that the value of the asset is too high, and will fall. This isn't good.

ReportInvestor wrote:

Index linked gilts have plumeted in price recently.

Have you got any alternative investments [to buy-to-let property] that will give a rising yield and not be hit by unemployment or economic downturn?

Please PM me first so I can pile in before anyone else on this board :rotfl: .

Rising yield???? The yield has been falling for 10 years, and there's only two ways for it to rise:

suddenly rents shoot up due to high inflation (unlikely)
the value of property falls dramatically (implying a massive loss on your investment - yield only rose because your investment lost half its value!!!)

Do remind me again what's good about low yields with the likelihood of a huge loss in capital value to restore value for the smarter investors buying at lower prices...

I'm waiting to hear, I'm sure there are millions of people waiting to buy an asset at the top of a bubble with all the hassles of being a landlord and a lower yield than sticking the cash in the bank, and a high risk of loss in capital value. Sounds like a guaranteed winner to me. BUY BUY BUY!!!!

LAST CHANCE TO BUY

Buy your Brixton crack den now, before prices hit ONE BILLION POUNDS and people get so desperate that 300 people team up on one mortgage, rather than renting a 4-bed detached for less money than the interest on the mortgage on the 1 bed.

It's the best investment opportunity ever!!! Quick, roll up, roll up, sign yourself up to pay off a mortgage for the rest of your working life making huge payments to cover that £250,000 LUXURY 1 BED FLAT in NEWLY FASHIONABLE "Peckham Village", close to convenient amenities such a choice of drug dealers and an excellent selection of crack-addled prostitutes.

whambamboo

daviesm001 wrote:

I think there are two issues here that are being mixed up.

The question depends on whether you're buying your own home or buying to invest. Also, a great many people think they are buying to invest but what they're doing is really just speculating. It's these speculators that can come a cropper because they don't research their market and they don't have more than one exit strategy and they rely only on the market rising in order to make their money.

If you're buying your own home, the only time it really matters if prices drop is if you're in the position where you HAVE to sell. This is when you get motivated sellers, such as those who have to relocate or those who have to sell due to divorce, etc. If you find you have to sell when the market has dropped, it's a problem.

Your implication is that if you're buying a home it doesn't matter when you buy.

This is clearly wrong. If you bought in 1989 you would have got a much smaller house for the same money than in 1996. Considering that your mortgage term is 25 years, you would be stuck in a nasty flat for 25 years with a poor quality of life, because you didn't wait a couple of years for prices to fall. Regardless of whether you have to sell or not, the house worth £70k in 1996 that was worth £100k in 1989 is worth exactly the same now, regardless of what you paid for it. So better you paid £70k than £100k isn't it?

Buying at the top of the market rather than 2 years later when prices have fallen is very expensive, and not something you can write off as unimportant

If people are selling because they can't afford the mortgage, then Martin is correct in that they've overstretched themselves, so affordability is the issue. Remember, they still need a place to live and so will have to rent from those of us who provide rental properties. Fixing the interest rate now would, therefore, be a good idea as interest rates are very low. If they stay put for 25 years, I cannot believe anyone seriously thinks that here in the UK (an island with a growing and importing population - supply & demand) prices will be less in 25 years than they are today!!!

But again, I'd rather buy the £500k house now for £350k in 1-2 years from now (this is already happening in the US), or alternatively buy a £715k house for £500k then. In 25 years assuming 400% appreciation I'd have a house worth £2.86m rather than one worth £2m. It's a big difference

For those of us who are seriously investing, again, the only time a price drop matters is if we sell. Most serious investors are in the business for the long term so why would we want to sell. The amateurs end up having to sell because they can't rent. Why can't they rent? Because they bought the wrong property in the wrong location for the wrong price and skimped on getting the property training to run property as a business (one of or a combination of these factors). Falling property prices do not mean falling rents, often the reverse.

Again, this is wrong, if you are a 'serious investor' in anything, you buy when prices are low, or at least good value. You don't say 'I think Marks & Spencer are a good business, but their shares are clearly about £2 too high, but I'll buy them anyway, because if I wait 5 years they will actually be worth their current price', no you buy something that is not at high risk of a price drop.

However, if you're in this business for the long term, which everyone should be as property is an illiquid asset, it doesn't matter so much because 20 years from now, do you really think prices will be less?

Again, wrong. If you have £1m and you use it to buy 10 houses now at £100k/each, or wait 2 years and buy 15 houses for £67k/each, in 20 years you have got a portfolio worth 50% more. Which of these is the better option?

Of course you argue that you have wonderful High-yield properties due to your fabulous property training, where the rent is covering the mortgage, so not only can you buy 10 houses now, and the rent will cover the mortgage, you'll buy 15 in 2 years time as well. But what happens when interest rates rise, wiping out your profit, the house price falls as a result, so not only have you got negative equity, meaning you could owe many hundreds of thousands of pound - making your houses less than worthless because the debt exceeds the value, you've also got to pay thousands of pounds a month to cover the increased interest payments. That spells bankruptcy to me.

I recall in 2003 there was a professor at (I think) Warwick university who was urging people who owned property to sell and rent instead with a view to buying back in when his predicted price crash happened. When I give talks on property investment I occasionally meet people who followed his advice and are devastated about how much they've lost.

Hmm, so these people listened to someone else in 2003, and sold, and prices have gone up since, so they've changed their minds and think that when prices have just gone up 25-30%, it's ripe for them to go up another 25-30%. Sounds like these people need to make their minds up.

And for what it's worth, I don't see that they should be that devastated. The growth since then has been just under 10% PA (less in London) - very nice for sure, but you could have made that much in other investments, and it's not like property ownership is risk-free. If you wanted to insure against prices falling in the next 2 years, I believe you'd have to pay a substantial premium.

Come back in 2 years, and let's see if we've just seen another 20% rise, or if we've instead got the 100k price cuts they are already seeing in the US and Australia.

It's very clear that presently property is very high risk, and with extremely low yields relative to any other asset class, there is no doubt in my mind that property, with a possible rare exception that I haven't found (don't tell me being a full time landlord managing HMOs for asylum seekers and immigrants is easy), is not a good investment.

If anyone cares to show me one property they would buy (link to rightmove, etc.) and how it is a good investment, I would be interested to listen.