Pricewaterhouse Coopers study shows housing is very poor investment over nxt 15 years

whambamboo

http://business.guardian.co.uk/story/0,,1937046,00.html

The consultancy says that over the medium term -in the years up to 2020 - the likelihood is that house prices will be higher than they are now by 20%-40% but says that people buying now should be aware of the short-term risks. John Raven, a senior economist at PricewaterhouseCoopers, says: "Despite the recent relative robustness of the UK housing market, potential homebuyers and investors should not underestimate its volatility in the medium term."

Hmm, so there are serious short-term risks, but hang on, those numbers to 2020 are appalling!

14 years time, 20% growth, equivalent to: 1.31% PA, or 40% growth equivalent to 2.4% PA - both dreadful returns for any investment.

You'd struggle to find less attractive growth prospects than that.

And their numbers are *very* conservative (i.e understate the risk for holders of housing)

The PWC model for house prices finds that, under the optimistic scenario that property is in line with its long-term equilibrium level, there is only a 6% chance of a price fall by 2010. Under the pessimistic scenario - that property is 25% overvalued - there is a two in three risk of a decline in prices.

So the *optimistic* (i.e. the best possible case) scenario is that housing is merely correctly priced. Sensible investors look to buy when assets are UNDER-valued.

And the pessimistic scenario is for just a 25% overvaluation, giving a 2/3 risk of falls in 4 years. But with house prices having tripled in 10 years, the overvaluation could be far greater than that.

And with high costs of maintenance and managing property, I'm sure glad I'm not getting into property at all, but particularly as a BTL investor, right now.

Just insane, people still piling in in these conditions.

mystic_trev

Another excellent well researched posting whambamboo - thanks

Poppycat

There seems to be quite a few houses in my area on buy to let. In fcat we got someone yesterday looking at our house for rental, she says she wants a house as her pension fund.

Woby_Tide

surely that's assuming that everyone wants to treat a house as an investment rather than a place to live so relatively low growth is no issue?

(also if you extrapolate backwards that people 'stopped' buying 2-3 years ago due to fears of a crash yet prices still rose then the figures over 17 years suddenly show greater returns, i.e. the survey is only relevnat to someone buying now or in the future)

sm9ai

Poppycat wrote:

There seems to be quite a few houses in my area on buy to let. In fcat we got someone yesterday looking at our house for rental, she says she wants a house as her pension fund.

I so hope she meant in addition to her pension fund.

lynzpower

I actually find it amazing how many properties on rightmove are advertised as perfect for the investor, when It seem fairly obvious a) a BTLer is selling it b) as a result many of these "ex-voids" as I call them look a bit crap and over priced ( unloved, uncared for) compared to ones sold by owners.

Maybe London is different though, maybe there will always be a need for huge amounts of rental property. new build flats are being chucked up to apppeal to the investor ( some say as much on the hoardings) and this "buy a share in a hotel room, this is the best return ever" This has to be no one taking them up, the adverts have been on london radio for that development bnear waterloo for over a year.

And still they keep building.

whambamboo

Woby_Tide wrote:

(also if you extrapolate backwards that people 'stopped' buying 2-3 years ago due to fears of a crash yet prices still rose then the figures over 17 years suddenly show greater returns, i.e. the survey is only relevnat to someone buying now or in the future)

the survey is of course relevant to people who bought in the past.

If you bought for £30k in 1996 and your investment is now worth £100k, you have an asset that you could sell for £100k now and invest in something else.

If you choose not to sell now, you're saying that there are good prospects at £100k - the original purchase price is no longer relevant.

meanmachine_2

Don't hold your breathe for the Express to go large on this one.

"House Prices to SOAR by 20% over 14 years!!! Now turn to pages 50-70 for our property adverts etc etc " Except the paper probably only goes up to 60 pages since they keep sacking their staff.

Still, it's only a prediction and as unreliable as the rest of them.

The pro-inflationers on here last year were telling me to buy, but DON'T expect the gains that they'd "enjoyed", because the hallowed soft landing had been achieved and the market was back to being rational again.

Yeah right.

jamminjamaica

Woby_Tide wrote:

surely that's assuming that everyone wants to treat a house as an investment rather than a place to live so relatively low growth is no issue?

thats exatly what i was thinking. i just want a nice home.