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

whambamboo

EdInvestor wrote:

Bugly's case is the sort of "win win" I mean.He gets a better quality of life at a cheaper price, his landlord gets his investment serviced, everyone's happy.It's likely that most (70% or more) people will want to buy at some point in their lives - but there are always times when renting is preferred.There is nothing wrong with this.

What I'm saying is that over long periods, like 25-30 years, it doesn't matter whether you went into the market at the top or the bottom ( this applies to shares as well).

That's absurd. Of course it matters hugely. If you can buy now for £500k a house that will be worth £2m in 25 years, or buy a house that's worth £1m now for £500k in 3 years, you will have an asset worth £4m in 25 years.

Unless you are one of the minority of skilled investors who do know how to time the market (there are a few) it's pointless trying, as you're just as likely to get it wrong as get it right, like all those people who sold out 5 years ago - or who didn't wait those few extra years for their 1989 purchase to come good.

You don't need to be a genius skilled investor to see that if prices went up a lot and then went up even more, and are overvalued by every measure, they are likely to fall, and it absolutely is not pointless trying (see above).

And since all property is local, there's an extra risk in trying to make predictions that fit everyone. Were you aware for instance that right through the 1990s, property in some parts of London continued to rise ? Anyone who didn't buy in 1989 because property prices were "too high" would have been badly caught out in these localities.

It's really impossible to generalise.

http://www.housepricecrash.co.uk/forum/index.php?act=Attach&type=post&id=3871

shows rises only in prime London. But even these areas underperformed leaving the money in the b ank. And who's the gamble on what will happen this time?

vishpatel

EdInvestor wrote:

What I'm saying is that over long periods, like 25-30 years, it doesn't matter whether you went into the market at the top or the bottom ( this applies to shares as well).Unless you are one of the minority of skilled investors who do know how to time the market (there are a few) it's pointless trying, as you're just as likely to get it wrong as get it right, like all those people who sold out 5 years ago - or who didn't wait those few extra years for their 1989 purchase to come good.

Of course it matters. The size of your mortgage makes a huge difference to your quality of life. Whether you can afford to have kids, etc... As does negative equity.

Shares are different. People don't usually scrimp and save all they can (deposit) and then plump it into the FTSE in one go.

People who sold out 5 years ago probably made a handsome profit on their property. They decided to cash in and do something else with the money. Why not?

It sounds like you are just another person who never thinks to sell property, only buy. Remember, theres a good time to buy, and a good time to sell any investment. Market forces usually mean it swings between the two. Where do you think we are at the moment, after the huge gains we've seen in recent years and rates rising?

FYI - this debate is extremely tired and repetitive IMO. Andrea asked that we dissect each others arguments politely. I see plenty of dissection from Bears, but the bulls just seem to be coming out with the same old spin i.e. long term you cant lose etc...
Since their case is backed by recent House price performance, they assume everything they say must be right going forward. Very tired IMO.

F_T_Buyer

The point you're missing EdInvestor, is that people are not buying on reasonable multiples, they are buying at massive multiples compared to the past. They are simply taking on too much debt.

You may argue it is ok to service a poor investment in the medium term, but what if you can't meet your obligations (mortgage, tax) - you will lose your home. Now just look at how many people are losing their homes, and this is at historically low interest rates.

Chrysalis

Thatcher promoted home ownership since it saves the government a lot of cash, no housing benefit, tax when house is passed down, vastly reduced costs of providing council housing. the population seems to have been fooled by it and its the in thing to own your own home which in some cases is a good thing to do it has its perks but I wouldnt call it right to rush into getting one in your early 20s.

inmypocketnottheirs

So, can we conclude that property pricesmight go down within the next seven years?

But who seriously thinks that in the long term, i.e. 20-25 years that property will not perform as it has done in every 25 year cycle.

whambamboo

inmypocketnottheirs wrote:

So, can we conclude that property pricesmight go down within the next seven years?

But who seriously thinks that in the long term, i.e. 20-25 years that property will not perform as it has done in every 25 year cycle.

no, you're right, it doesn't matter.....

Except when you buy at the high price, and then 25 years later the person who waited has twice as much money as you....

Oops, it does matter a lot, and you shouldn't buy at excessive prices, regardless of the length of your investment.

F_T_Buyer

inmypocketnottheirs wrote:

But who seriously thinks that in the long term, i.e. 20-25 years that property will not perform as it has done in every 25 year cycle.

A Japanese style deflation is a serious risk to the UK (prices falling for 15 years). Add on the impact from demographics, more people in retirement etc... I don't think another boom like this will happen for a long long time...

angstrom

Martin has done a fine job of giving a balanced view of the housing market.

Sadly, most people who get 'air time' to the public ie lenders, estate agents even the government, have a vested interest in the price of property rising. As Martin correctly points out, this is not a good situation except when you downsize.

I've no idea why people are so fixated with the idea that they are 'richer' just because their house has risen in value. All this means is it becomes increasingly unaffordable to upsize or improve location. As for argument that one can borrow money against the higher value to buy cars and holidays etc, this is all very well but the money has to be paid back at some point along with all the interest! Would anyone in this forum take out a 20 year loan on a car that will be replaced by a new one after 5 years? I bet not. However this is exactly the situation if you had 20 years to run on your mortgage and extracted some equity to buy a car you only intend to keep for 5 years.

While there are so many people clambering to get on the property ladder and BTL's buying at poor yield (irrational heard effect), I'm happy to sit on my hands and wait for the inevitable bubble to pop and pick up some keenly priced repo's.

Here are some points and thoughts for you ...

1. Though the price of property is still rising, the rate of the price rise is falling. This loss of rise momentum won't result in a 'flat' market (as most people with a vested interest in seeing the price of property rise will no doubt try to convince you). Most asset classes (including property) run in cycles. By the time they have peaked, in general, they are over bought ie people are paying 'too much'. After the peaks, follow the falls. Refer to 1974 and 1988 for examples. Even if property did remain at a constant price, you'd still be losing by the rate of inflation.

2. FTB's are being priced out. With no FTB's, the market will stagnate. However, some people must/be forced to sell their property. They will therefore have to reduce prices to a level that FTB's can afford or Pro BTL's are willing to pay.

3. I doubt professional BTL's will buy property if the yield is too low. Those less savvy BTL's do so, thus pushing up prices with no viable economic reason. But their buying will soon dry up when they can't afford to subsidise their lucky tenants. Ie by paying towards the cost of the mortgage to cover the shortfall between their interest payments and the rent they collect.

4. People who stretched themselves to take out a limited term fixed mortgage will have shock when they revert to a variable rate. An addition 2% does not sound very much but consider this:

Take out an introductory fixed loan for 2 years at 4% that stretches you to the max just to climb on board. After the 2 years is up, the lender reverts you to a variable rate of 6%. Ouch! your interest payments increased by 50%.

You then find another product and fix for another 3 years at say 5% (for which you'll most likely have to pay a handsome fee). Even now, your interest payments are up by 25%. Can you afford this?

5. When people are sold 125% mortgages to enable them to climb on the housing ladder, this to me rings a warning bell.

6. Then there is the mortgage you take to your grave and hand on to your kids. Desperate stuff and only serves to temporarily inflate the property bubble a bit more.

7. The idea that it is always a good time to buy a house is nonsense because 'long term they out perform inflation'. At differing points in the property price cycle, it is actually cheaper to rent. A good indicator is when rents are less than mortgage payment PLUS the cost of maintaining a property. When you rent, the upkeep is down to the landlord ie included in your rent. Mortgage payments exclude upkeep. Even a modest upkeep of 1% (if you're lucky) on an average priced property adds about £2000 to the cost of keeping a property.

8. The remit of the BOE is to keep inflation under control. Currently it is above the acceptable rate set by the Chancellor. Higher energy prices and increased taxation are sapping our spending power. We'll have less money to service debt because energy and tax will always need to be paid for. Thus to control inflation, interest rates need to rise. Don't be surprised to see interest rates at 5% by the end of the year ... and it may not end there.

9. About 3/4 million people are behind on their mortgage payments.

10. Personal IVA's and bankruptcies are on the rise.

11. Repossessions are on the rise.

12. Unemployment is on the rise.

Does any of this make you feel confident that property has much further to rise before it 'corrects'?

I'm keen for your views.

Angstrom

EdInvestor

F_T_Buyer wrote:

The point you're missing EdInvestor, is that people are not buying on reasonable multiples, they are buying at massive multiples compared to the past.

Indeed they are.But there is a very logical and obvious reason for this.In the old days when multiples of 3X were the norm, interest rates were in the double digit range between 10 and 15%.:eek:

Now, interest rates are in the 3-6% range.Thus people can afford to service much larger mortgages.Thus lenders are lending them much more money, multiples are much higher and house prices have gone up.

The bottom line for a future homebuyer is quite simple IMHO:

Will interest rates return to double digit levels? If this did happen, then almost certainly house prices would be likely to crash dramatically and it would be best to stay out of the market.

Or will they remain in the range they have been in for the last decade,since responsibility for them was handed over by Gordon Brown to the Bank of England? In so, then very likely house prices will not crash, they will continue to rise, more or less in line with rises in incomes.

So what's your view: a major rise in interest rates, or much the same as we have now going forward?

If the former, then stay out of the market.If the latter, then there should be no major unexpected surprises if you buy.

whambamboo

EdInvestor wrote:

Indeed they are.But there is a very logical and obvious reason for this.In the old days when multiples of 3X were the norm, interest rates were in the double digit range between 10 and 15%.:eek:

Now, interest rates are in the 3-6% range.Thus people can afford to service much larger mortgages.Thus lenders are lending them much more money, multiples are much higher and house prices have gone up.

The bottom line for a future homebuyer is quite simple IMHO:

Will interest rates return to double digit levels? If this did happen, then almost certainly house prices would be likely to crash dramatically and it would be best to stay out of the market.

Or will they remain in the range they have been in for the last decade,since responsibility for them was handed over by Gordon Brown to the Bank of England? In so, then very likely house prices will not crash, they will continue to rise, more or less in line with rises in incomes.

So what's your view: a major rise in interest rates, or much the same as we have now going forward?

If the former, then stay out of the market.If the latter, then there should be no major unexpected surprises if you buy.

Once again, you're wrong. As one of the links I pointed to earlier points out 'historically low interest rates' are irrelevant. The only interest rates people remember are those from the last couple of years. The US crash is underway big time, and they haven't got double digit interest rates - in fact the rates the are barely higher than they are here, but they have got higher rates than a couple of years ago, and relatively speaking homebuyers are feeling the pinch.

If interest rates go from 4% to 6%, then the monthly interest payment increases by 50%. That is a *major* rise, especially when you've borrow 300k for a 1 bed flat. Whether or not it was