Any other home buyers in NI?

motorguy

qwert_yuiop wrote: »

1)The important word in the sentence is "last". All right 7 years - since 2007? So interest paid on loan is likely 25 - 28 %?

Therefore effective rate of interest 75- 78%. Horribly accurate. And just plain horrible

2) probably not but well who knows?

3) If you're not familiar with the term "distressed sale" look it up.

Why do you insist in looking at the past? We're talking about NOW? why do you drone on about "oh, well, if you bought 7 years ago, by now you'd have poo'ed your pants and have lost £150K".

What does it really matter to you what did or didnt happen to someone else 7 years ago?

Its irrelevant, we're talking about NOW.

Of course i'm familiar with the term distressed sale. However if you can only justify your figures by bunging in the assumption that someone *has* to make a distressed sale??? :eek:

motorguy

qwert_yuiop wrote: »

Pointless example. Mr Hertz makes allowances for wear, tear and depreciation in his charges. And profit.

Loving it.

Disguard the example, because you dont like what it proves.

:T

qwert_yuiop

motorguy wrote: »

Loving it.

Disguard the example, because you dont like what it proves.

:T

1) I disregarded the example because it's stunning in its irrelevance. Proves it's a bad idea to hire a car for 3 years, that's all. Think I knew that.

2) I simply used those figures to illustrate the concept of interest as dead money, and how your appreciation of asset has to be ahead of your interest rate on loan before you're winning - and how financially devastating it is to borrow money on a depreciating "asset" (aka "liability"). Probably emotionally devastating, too.

marathonic

During 2007, the average house price represented 9.1 times the average salary.

Today, the average house price represents 4.2 times the average salary.

I would argue that someone on average salary that manages to put 40% of their salary towards a mortgage is doing really, really well considering all their other expenses.

If we use an interest rate of 4%, the 2007 purchase would take approximately 36% of the average salary - just to cover interest. Therefore, if you're putting 40% of your salary towards your mortgage, or slightly more, the capital would have been paid down EXTREMELY slowly.

Roll forward to today, it would take about 17% of your salary to cover the interest at 4%. Therefore, out of the 40% of your salary reserved for the mortgage, you could use 23% of it to pay down capital (increasing over the years as the interest portion reduces). If the average house costs 420% of your salary and you pay down 23% of capital in the first year, you've just paid down 5.5% of the total outstanding capital - and things improve through time.

Given the significant difference in the above numbers, why would anyone even use the 2007 position as an argument not to buy today?

A further 20% fall would mean that house prices would represent about 3.3 times the average salary - and that assumes no salary inflation. I can't see this happening.

Using the salary multiple measure, in the 9 years of NIRPPI records, things have never been better than now. Yet some think that things are going to get significantly worse.

In fact, using salary multiples alone, it was 33% more expensive to buy in 2005 than it is today - and that's before the 'real' bubble emerged.

qwert_yuiop

marathonic wrote: »

During 2007, the average house price represented 9.1 times the average salary.

Today, the average house price represents 4.2 times the average salary.

I would argue that someone on average salary that manages to put 40% of their salary towards a mortgage is doing really, really well considering all their other expenses.

If we use an interest rate of 4%, the 2007 purchase would take approximately 36% of the average salary - just to cover interest. Therefore, if you're putting 40% of your salary towards your mortgage, or slightly more, the capital would have been paid down EXTREMELY slowly.

Roll forward to today, it would take about 17% of your salary to cover the interest at 4%. Therefore, out of the 40% of your salary reserved for the mortgage, you could use 23% of it to pay down capital (increasing over the years as the interest portion reduces). If the average house costs 420% of your salary and you pay down 23% of capital in the first year, you've just paid down 5.5% of the total outstanding capital - and things improve through time.

Given the significant difference in the above numbers, why would anyone even use the 2007 position as an argument not to buy today?

A further 20% fall would mean that house prices would represent about 3.3 times the average salary - and that assumes no salary inflation. I can't see this happening.

Using the salary multiple measure, in the 9 years of NIRPPI records, things have never been better than now. Yet some think that things are going to get significantly worse.

In fact, using salary multiples alone, it was 33% more expensive to buy in 2005 than it is today - and that's before the 'real' bubble emerged.

I think everyone accepts things are a lot more acceptable to buyers than they were.
A work colleague has just sold a house in just 2 weeks - for less than he paid for it in 2002. It might be worth working out interest paid on loan over the 11 years and comparing the value of 250,000 then to today's value. On the other hand, why upset yourself?

We have to accept however that we're hardly living in boom time, here or internationally, and economic difficulties are proving pretty much intractable. That's why I don't see any need to rush into buying. As you've indicated your pals are pretty cautious, and I'd say they're not the only ones. I know "past performance is no guide to future returns" in either direction, but who can blame them?

marathonic

A quicker way to say the above using the example of someone on average salary in an average house putting 40% of their salary into the mortgage:

Someone who bought in 2007 and subsequently, over 7 years, experienced a 50% drop in prices could reasonably expect to have a bit under 4% of their mortgage capital paid down and expect to be in negative equity to the tune of about 4.2 times their annual salary.

Someone who buys today and, however unlikely, experiences a 50% drop in prices over the next 7 years, could reasonably expect to have about 40% of their capital paid down and expect to be in negative equity to the tune of about 0.4 times their annual salary.

:T:T:T

marathonic

qwert_yuiop wrote: »

A work colleague has just sold a house in just 2 weeks - for less than he paid for it in 2002.

No wonder it sold in just 2 weeks then. If I were to guess, I'd say pick any two from the following:

• It was bought as a new build and no longer has the so-called 'new-build premium'
• He overpaid in the first place
• He sold too cheaply

motorguy

qwert_yuiop wrote: »

1) I disregarded the example because it's stunning in its irrelevance. Proves it's a bad idea to hire a car for 3 years, that's all. Think I knew that.

2) I simply used those figures to illustrate the concept of interest as dead money, and how your appreciation of asset has to be ahead of your interest rate on loan before you're winning - and how financially devastating it is to borrow money on a depreciating "asset" (aka "liability"). Probably emotionally devastating, too.

Firstly, we all know the example was based on cars, but was really about renting - it was merely demonstrating that even on an asset that depreciates like snow off a ditch like a car, interest paid on a loan is better than renting the asset.

Secondly, its hardly "financially devastating" to pay interest on a loan, particularly given you have the asset at the end of the loan, be it a house or a car.

motorguy

qwert_yuiop wrote: »

I think everyone accepts things are a lot more acceptable to buyers than they were.
A work colleague has just sold a house in just 2 weeks - for less than he paid for it in 2002. It might be worth working out interest paid on loan over the 11 years and comparing the value of 250,000 then to today's value. On the other hand, why upset yourself?

Sure if he'd rented for 11 years he'd have been down more money anyway?

motorguy

marathonic wrote: »

No wonder it sold in just 2 weeks then. If I were to guess, I'd say pick any two from the following:

• It was bought as a new build and no longer has the so-called 'new-build premium'
• He overpaid in the first place
• He sold too cheaply

I was just coming to that - something badly wrong. :eek: