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Debate House Prices
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Ladders can be dangerous, especially housing ladders
macaque_2
Posts: 2,439 Forumite
According to PriceWaterHouse, house prices are set to stagnate for the next 10 years (the 70% club is less optimistic)
http://www.ifaonline.co.uk/ifaonline/news/2093049/pwc-house-prices-won-t-recover-2020
Imagine you decide to climb the 'property ladder' in 5 off two year steps between now and 2021 as follows:
£100k
£150k
£250k
£400k
£500k
How much will this process cost you?
Cost of stamp duty, estate agent fees conveyancing (Nationwide calculator) = £58,000
Interest charges = £63,000
Building maintenance costs (say 2% p.a.) = £56,000
Fitting out costs (say £5k per move) = £25,000
Removal costs (say £2k per move) = £10,000
Insurance costs (£500 p.a.) = £5,000
Final sale costs = £11,000
Total cost = £228,000 (before you have paid back any capital).
If you have been on an interest only mortage, then you will be left with £39,000 after redeming the mortgage and this does not include your losses of £228k
If housing prices drop by 50% over the next 10 years, you will lose £478,000 and you will have debts of £461,000 after paying off the mortgage.
Profitable housing ladders have existed in the past but they rely on high wage inflation. The above calculation is based on the assumption that disposable incomes remain static (they are falling at the moment).
The phrase 'housing ladder' is often used by estate agents. It sounds very positive but in reality it is no more than an inducement to take a huge speculative punt. If incomes take off or house prices start from a very low level, the bet pays off. If not, you can lose a lot of money. Either way, the agent gets his/her commission.
http://www.ifaonline.co.uk/ifaonline/news/2093049/pwc-house-prices-won-t-recover-2020
Imagine you decide to climb the 'property ladder' in 5 off two year steps between now and 2021 as follows:
£100k
£150k
£250k
£400k
£500k
How much will this process cost you?
Cost of stamp duty, estate agent fees conveyancing (Nationwide calculator) = £58,000
Interest charges = £63,000
Building maintenance costs (say 2% p.a.) = £56,000
Fitting out costs (say £5k per move) = £25,000
Removal costs (say £2k per move) = £10,000
Insurance costs (£500 p.a.) = £5,000
Final sale costs = £11,000
Total cost = £228,000 (before you have paid back any capital).
If you have been on an interest only mortage, then you will be left with £39,000 after redeming the mortgage and this does not include your losses of £228k
If housing prices drop by 50% over the next 10 years, you will lose £478,000 and you will have debts of £461,000 after paying off the mortgage.
Profitable housing ladders have existed in the past but they rely on high wage inflation. The above calculation is based on the assumption that disposable incomes remain static (they are falling at the moment).
The phrase 'housing ladder' is often used by estate agents. It sounds very positive but in reality it is no more than an inducement to take a huge speculative punt. If incomes take off or house prices start from a very low level, the bet pays off. If not, you can lose a lot of money. Either way, the agent gets his/her commission.
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Comments
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Are you on drugs, macaque?“The great enemy of the truth is very often not the lie – deliberate, contrived, and dishonest – but the myth, persistent, persuasive, and unrealistic.
Belief in myths allows the comfort of opinion without the discomfort of thought.”
-- President John F. Kennedy”0 -
HAMISH_MCTAVISH wrote: »Are you on drugs, macaque?
I think he must be. Hallucinogenics together with caffeine I would think.
The caffeine works wonders to toil extremely hard every day trying to find as many pieces of flimsy 'evidence' as he can that house prices are going to fall 30%.
The hallucinogenics provide the means not only to 'believe' the drivel that he digs up, but also to believe that the more he says it, the more likely it is to happen.0 -
The phrase 'housing ladder' is often used by estate agents. It sounds very positive but in reality it is no more than an inducement to take a huge speculative punt. If incomes take off or house prices start from a very low level, the bet pays off. If not, you can lose a lot of money. Either way, the agent gets his/her commission.
Have you missed the boat? Stuck in the rental trap? My guess is you're still just renting and paying dead money to a landlord!
Get on the ladder macaque, before you're priced out forever!
House prices always go up and property doubles every 10 years, so you can't go wrong buying property.
Why pay off someone else's mortgage?Day to day, little things we can all do to tackle the Credit Crunch.0 -
HAMISH_MCTAVISH
Are you on drugs, macaque?Loughton Monkey
I think he must be. Hallucinogenics together with caffeine I would think. The caffeine works wonders to toil extremely hard every day trying to find as many pieces of flimsy 'evidence' as he can that house prices are going to fall 30%.
The hallucinogenics provide the means not only to 'believe' the drivel that he digs up, but also to believe that the more he says it, the more likely it is to happen.Zoran Ilievski
Have you missed the boat? Stuck in the rental trap? My guess is you're still just renting and paying dead money to a landlord! Get on the ladder macaque, before you're priced out forever!
House prices always go up and property doubles every 10 years, so you can't go wrong buying property. Why pay off someone else's mortgage?
Oh dear! The bulls have gone for the man rather than the ball again.
House prices are driven by supply and demand and at the moment we have a complete missmatch on this score. On the supply side there are not enough houses being built to keep up with the influx of immigrants. On the demand side there are not enough people with the incomes/savings to buy the houses. If incomes remain static, the missmatch will only get worse. From a purley investment perspective there are 3 possible decisions to make.
1. House prices start from a low value and disposable incomes rise - Buy
2. House prices start from a high value and disposable incomes rise - Hold
3. House prices start from a high value and disposable incomes remain static - Sell
The OP was a simple projection based on prices starting at high values (which they are) and incomes remaining static (they are falling at the moment). The numbers are correct and can be checked. Although we have inflation, we don't have wage inflation.
The bulls have been seduced by a 50 year rise in population combined with rising incomes. What they have failed to recognise is a sea change in the economic climate.0 -
The OP was a simple projection based on prices starting at high values (which they are) and incomes remaining static (they are falling at the moment). The numbers are correct and can be checked. Although we have inflation, we don't have wage inflation.
with static house prices and a static wage, how did your example home owner manage to increase his mortgage by 400K to get to the top of the ladder in 10 years?
what are you trying to prove with this example, if its not to move every 2 years then I think most people already know that is a bad idea even in a booming property market.0 -
Oh dear! The bulls have gone for the man rather than the ball again...
I place on record that despite the accusation above, I am neither a bull nor a bear. I'm simply someone who likes to see a sensible and logical debate on the economy.
Predicting a further 30% drop in house prices is not sensible. It is not logical. It will not happen.0 -
If you wish to own a house, generally speaking, the most dangerous thing about the housing ladder is not being on it.0
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Loughton_Monkey wrote: »I place on record that despite the accusation above, I am neither a bull nor a bear. I'm simply someone who likes to see a sensible and logical debate on the economy.
Predicting a further 30% drop in house prices is not sensible. It is not logical. It will not happen.
Thank you Captain Sensible. So 100% rise over 10 years is sensible but a 30% correction is not! Give me strength.0 -
Thank you Captain Sensible. So 100% rise over 10 years is sensible but a 30% correction is not! Give me strength.
How much should they have risen over 10 years in "real" terms then? Doesn't the Nationwide graph have "real" prices back to beneath their long term trend line.
Penultimate chart:
http://www.nationwide.co.uk/hpi/historical/Jun_2011.pdf0 -
Thank you Captain Sensible. So 100% rise over 10 years is sensible but a 30% correction is not! Give me strength.
No one's saying they'll double in 10 years, but looking at the worst case scenario, they'll probably manage to keep up with inflation over that time frame. In the meantime you'll just have to fight over what little rental accommodation you can find.:rotfl:
http://www.bbc.co.uk/news/business-141355530
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