HPC thread of the week

Crashy_Time

Oh look, someone on HPC is saying that Aberdeen is starting to crash, better wake the lads up and get them bullied into changing their view.


http://www.housepricecrash.co.uk/forum/index.php?/topic/48163-aberdeen-aspc-stats/page-208

wotsthat

Crashy_Time wrote: »

How many people with paid off mortgages make the mortgage payments you were comparing to rent payments?

Ah, when you said renting all along you meant until that very moment in time usually early in the mortgage term. Very short term thinking.

House prices are hard to predict but the end of a mortgage isn't. All gravy after that probably after many years of mostly gravy.

If someone can't cope with even the possibility of NE they should rent.

ukcarper

Crashy_Time wrote: »

How many people with paid off mortgages make the mortgage payments you were comparing to rent payments?

I have paid off my mortgage took over 40 years 4 different houses, out of those 40 years the mortgage was more than equivelent rent for less than 10 and for many it was significantly lower.

mwpt

wotsthat wrote: »

Some can't mentally get the idea that assets can be converted to cash so will over bias decisions by comparing month 1 mortgage with month 1 rent. Rent less than mortgage does not necessarily mean it's cheap.

<snip>

Are you able to post your cash flow analysis to show how you value the capital and opportunity costs on the mortgage? I know I have one, and I'm certain that someone who can point out the difference between interest only and repayment mortgages is way smarter than I am and would have much more sophisticated models.

westernpromise

Crashy_Time wrote: »

Do you think buying in "most of the rest of the country that is cheap", or however you put it, around 2007 made sense?

Yes, that would have been a really, really good trade. Many of us did it.

In 2007 you could have got a 3-year tracker mortgage at BoE plus 0.75% (I did). So on a repayment basis, you would, after the first two years, have paid off about 5.4% of the principal (assuming a BoE average rate over that period of about 3% - I haven't checked but it went from 5% to 0.5% so it seems reasonable).

In the subsequent seven years since you'd have paid off a further 28%; so you'd now owe about 67% of what you originally borrowed.

If the price of the property fell 30% the day after you bought it, you'd have been out of negative equity a year ago. Had it done what it actually has done in most places since, which is to say go up a bit and go down a bit not necessarily in that order, then you'd have been out of any woods a lot sooner than that.

Another way of looking at it still is to consider what position you'd now be in had you maintained the 2007-2009 payment rate. That is, instead of spending the mortgage savings as extra income, where would you be if you had carried on paying at say 3.25% while the debt was costing you only 1.25%?

The answer is that if you had done so, you would by now have paid off over 47% of the original mortgage.

So at this point, you would be halfway to paying off the mortgage and pretty much beyond the reach of any imaginable negative equity, even assuming a crash on the scale of Japan in 1990 (that's not going to happen). In not very much more time from now, you would own outright. And at that point, things like negative equity, mortgage payments, and rent become things that happen only to other people.

The calculation I've not done is to work out at what point you would need house prices to fall more than 100% for any past rental decision to start looking like a smart move now. If you add up all the rent that has bought your typical HPC short speculator nothing, and take into account how much of a property the short speculator could have owned by now and the cost of that, and if you look at what house values have gone to, there must be shorts out there who need house prices to be negative in order for starting to buy one now to work out better than having done so before.

I would be really surprised if any of the short speculators ever does this though. Imagine if you found that 3 years ago was your 0% crossover point and since then you've simply been getting further into negative territory!

This must primarily be a risk to people who speculated against areas where both rents and prices have gone up, such as the south-east. I may do this using my own rental place as a template, since I know what the mortgage has been and I also know what the rent has been since I started letting it out. It wouldn't surprise me if that went negative some years ago.

** edit: I've just done this calculation on a quick and dirty basis.
The flat I have let out was valued at £425k in that year and is now worth £925k. The total rents over that period have been £345k and the total mortgage payments, interest and principal, £310k (I don't pay principal off but this is just a what-if).

As at 2016 there's £235k remaining on the mortgage.

So to own it outright the buyer needs to pay off a further £235k. The renter has paid £35k more than the buyer so would need to buy it for £200k today on a 13-year mortgage to be back in the same position.

The flat's worth £925k so I calculate - crudely - that anyone who rented such a flat since 2004 now needs a price fall of £725k or 78% in order for renting now to work out the same as having owned since 2004.

This overstates the position in one way - stamp duty in 2004 was 3% on £425k, which is just under £13k. SDLT at today’s levels on a £200k buy would be £1500, so buying now saves £11k in SDLT. On the other hand, it understates it the other way - a mortgage today is going to be more than 0.75% over the base rate, so the buyer of today is going to be paying a lot more interest.

It’s interesting though that after only 12 years we’re already at the point where the renter needs an 80% price fall from 2004 just to break even.

The lesson to HPCers really is to stop thinking of this as a speculative short where you can make easy money by cleverly buying the dips. Instead think about it as others do, i.e. a long term buy and hold that you just forget about once bought.

mwpt

http://www.housepricecrash.co.uk/forum/index.php?/topic/208105-ons-house-prices-up-77-yoy-up-form-7-in-oct/?p=1102866437

Another speculator hoping to profit from the housing market. I thought they jut wanted a home.

westernpromise

mwpt wrote: »

http://www.housepricecrash.co.uk/forum/index.php?/topic/208105-ons-house-prices-up-77-yoy-up-form-7-in-oct/?p=1102866437

Another speculator hoping to profit from the housing market. I thought they jut wanted a home.

"Except for Aberdeen where it's dipping in double digits"

Great, let's all move to Aberdeen. Not.

westernpromise

If anyone's interested these are my raw numbers from above:


value annual rent yield hypo 100% mortgage start interest principal balance cashflow diff renting over buying
2004 425,000 22,100 5.2% 475,575 4.50% £425,000 £18,932 £9,415 £415,585 £443,932 -6,247
2005 453,475 22,100 4.9% 505,958 4.50% £415,585 £18,500 £9,848 £405,737 £462,432 -6,247
2006 483,858 24,700 5.1% 560,476 4.75% £405,737 £19,057 £9,972 £395,765 £481,490 -4,329
2007 516,276 24,700 4.8% 619,767 4.75% £395,765 £18,573 £10,456 £385,309 £500,063 -4,329
2008 550,867 24,700 4.5% 681,375 3.79% £385,309 £14,406 £11,439 £373,870 £514,469 -1,145
2009 587,775 27,000 4.6% 745,456 1.29% £373,870 £4,726 £16,493 £357,377 £519,194 5,781
2010 627,156 27,000 4.3% 814,475 1.29% £357,377 £4,512 £16,707 £340,670 £523,706 5,781
2011 669,175 27,000 4.0% 886,310 1.29% £340,670 £4,295 £16,924 £323,747 £528,001 5,781
2012 714,010 27,000 3.8% 961,149 1.29% £323,747 £4,075 £17,143 £306,603 £532,076 5,781
2013 761,849 30,000 3.9% 1,039,193 1.29% £306,603 £3,853 £17,366 £289,238 £535,929 8,781
2014 812,893 30,000 3.7% 1,123,656 1.29% £289,238 £3,627 £17,591 £271,646 £539,556 8,781
2015 867,356 30,000 3.5% 1,211,769 1.29% £271,646 £3,399 £17,819 £253,827 £542,955 8,781
2016 925,469 28,800 1,303,776 1.29% £253,827 £3,168 £18,051 £235,776 £546,123 7,581
2017 987,476

wotsthat

mwpt wrote: »

Are you able to post your cash flow analysis to show how you value the capital and opportunity costs on the mortgage? I know I have one, and I'm certain that someone who can point out the difference between interest only and repayment mortgages is way smarter than I am and would have much more sophisticated models.

I've done different models in the past making assumptions about inflation, mortgage rates, and savings rates. Unless silly assumptions are made then the worst case is a delay of the breakeven but it's always early enough to make it the right choice. The key is to get about 5 years in because the early years are when bad things make a difference. Oh, and to guarantee the gravy live a long time.

It's different for the HPC crew because..
- they're great at predicting house prices
- they pay below market rents which don't increase
- they make way above average investment returns

I did/ do none of the above so I bought. Zero rent/ mortgage is guaranteed and I don't have to waste headspace on waiting for the crash or chasing low rents.

Don't worry. You did the right thing. If you need any more reassurance let me know.

TheeMaskedTurnip

They're desperately trying to rip Hamish a new one over there. Pathetic.