How interest rates affect property values

wotsthat

mwpt wrote: »

Well, on the other hand, I think if you read enough about economics and trading, you'd revisit that opinion. There are reasons for being wrong and reasons for being right, but pure outcome of results is often not the best way to judge those reasons. You recently disagreed with my investment strategy of buying into dips rather than drip feeding. My strategy has worked better than drip feeding would have, but you still think my strategy is wrong. That's an example.

I'm all about the results. I don't care for the advice of people who are wrong for the right reasons (probably a success bias of some sort). Anyway, I think BU is an idiot so I wouldn't put a penny of my own money his way on principle.

I don't think buying in the dips is wrong - it's great for people who can identify these dips but your dip was someone else's peak. 50% of the people involved in the trade got it wrong. If you're consistently on the right side fair enough - maybe you should be writing a book.

wotsthat

mwpt wrote: »

but now it would be good to fully show an alternative mechanism that allows monthly mortgage rates to remain the same or lower while asset prices inflate.

Mortgage rates have hardly moved for 2 years and prices have gone up (in London) by a lot.

Low interest rates must be the gift that keep on giving...but only in London.

ukcarper

HAMISH_MCTAVISH wrote: »

Only up until 2014, but sure.



It shows only minor variances to what is pretty much a national trend.

The fact is that people haven't been bidding up prices to the max thanks to taking larger loans with low interest rates.

Mortgage payments as a % of income, even for London, remain markedly lower than they were in 2007.

This graph posted by Hamish shows percentage of earnings paid on mortgage increased in London while rates have remained the same

mwpt

wotsthat wrote: »

I'm all about the results. I don't care for the advice of people who are wrong for the right reasons (probably a success bias of some sort).

I think many people, even on this forum would point out the flaws in this. Use results as an indicator, sure, but analyse why after that.

Out of many thousands of traders, all rolling dice as their investment strategy, picking the top 1% of those traders and calling them successful based on results would still be wrong.

mwpt

ukcarper wrote: »

This graph posted by Hamish shows percentage of earnings paid on mortgage increased in London while rates have remained the same

Ok, but you're not describing the mechanism that allows this to happen. At this point can we leave disagreements aside and pretend that I don't have an existing idea. Describe to me the mechanism that agrees with the trends be it higher age FTBers higher salaries, etc. After that, substitute 6% interest rates into your mechanism and ask what the implications would be.

padington

mwpt wrote: »

Ok, but you're not describing the mechanism that allows this to happen. At this point can we leave disagreements aside and pretend that I don't have an existing idea. Describe to me the mechanism that agrees with the trends be it higher age FTBers higher salaries, etc. After that, substitute 6% interest rates into your mechanism and ask what the implications would be.

Can you imagine how hot the economy would have to be for interest rates to be 6% right now?

ukcarper

mwpt wrote: »

Ok, but you're not describing the mechanism that allows this to happen. At this point can we leave disagreements aside and pretend that I don't have an existing idea. Describe to me the mechanism that agrees with the trends be it higher age FTBers higher salaries, etc. After that, substitute 6% interest rates into your mechanism and ask what the implications would be.

As the earnings to mortgage ratio has not increased significantly the only conclusion I can draw is that is that FTBs are earning higher salaries.

westernpromise

He's written a book about being wrong?

What was it called? Was it a proper book or was it self published?

mwpt

ukcarper wrote: »

As the earnings to mortgage ratio has not increased significantly the only conclusion I can draw is that is that FTBs are earning higher salaries.

We know that the average age of FTBers is increasing. I'm not sure if we have stats for the salaries? It would be very interesting.

Sorry to ask, but since I've had multiple people posting and trying to respond to those, I've lost track of where we showed the long term trend of earnings to mortgage ratio. Could you please post the long term trend stats? (not just a year on year stat). I thought I showed an increasing trend since 2008 (with the usual short term ups and downs).

mwpt

padington wrote: »

Can you imagine how hot the economy would have to be for interest rates to be 6% right now?

That isn't the point of course. The point is if the low interest rates (a response to a poor economy) contributed to upward pressure on house prices. Testing a theory at higher interest rates can be revealing as a hypothetical scenario without having to write a thesis on why interest rates are low.