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BCR approaching 100%
westernpromise
Posts: 4,833 Forumite
Here's an interesting post.
http://www.housepricecrash.co.uk/forum/index.php?/topic/203556-are-the-shires-crashing/?p=1102903793
There are the usual HPC tropes in there - “it’s madness”, “I’ve been waiting for prices to fall [yet I don’t, for all that, see myself as any sort of speculator]”. But I thought I’d work out his BCR as “I may have little option but to join the madness”.
Looking at Zoopla for a random 2-bed semi in Milton Keynes that's just gone under offer at that sort of price, I found one in Radcliffe Street. Looking at values in that street generally, I found this example:
http://www.zoopla.co.uk/property/23-radcliffe-street/wolverton/milton-keynes/mk12-5dj/14715223
2 bed semi, sold at £85,000 in 2000, worth £220,000 today. So that fits quite well with the type of house this poster is talking about.
If we say that its price has gone up in a straight line, that's about 6% a year. So the HPC poster's estimate of asking prices 3 to 4 years ago having been "between 140k and 170k" looks about right; by 4 years ago, the £85,000 house's value (in a straight line at 6% pa from 2000) would have been £171k. It wasn't a straight line, so he has it about right.
Its price ten years ago would, on the same basis, have been about £120,000. And the poster, who is 41, has been waiting all that time for a crash (and seems not to have noticed the one between 2008 and 2010). If he’s been waiting for a crash then we must presume he could have bought 10 years ago. Had he bought that house for £120k 10 years ago on a 100% mortgage (possible back then), then the payments would have averaged say £570 a month (at 3%), and he'd now owe £82,000.
Instead he rented. Now, to rent a 2-bed house in the same postcode today would cost about £900 to £950 a month. From this source
http://webarchive.nationalarchives.gov.uk/20160105160709/http://www.ons.gov.uk/ons/publications/re-reference-tables.html?edition=tcm%3A77-304792
...we can look up what has happened to rental costs by area over much of those 10 years. The average figure for March 1996 for the south-east, east midlands and east was 96.8; the equivalent figure for 2013, the latest year, it's 102.2. The difference is 5.3 points, so making a simplifying assumption that rent rises have also been linear, the rise over ten years to today would be 104.4. Hence if 104.4 = £900 a month, the rent ten years ago would have been 96.8/102.2 x £900, which is £835 a month.
So the average monthly rent over those ten years would be say £865, roughly £250 a month more than the mortgage (which would have been higher or similar initially, of course).
In total, then, he has spent £105,000 on rent over ten years, which is £30,000 more than the mortgage would have cost. To break even, he would need to own the house today for £30,000 less than the 2006 buyer still owes on the mortgage. This means he’d need to buy the house for £52,000.
As its value today is around £200,000, this is a BCR of about 75%. By next year he'll need to buy the house for £40,000, so a BCR of 80%.
My guess is that most crash trolls think prices “need” to correct by about 30 to 50%. I wonder how many of them realize that they actually need falls of about twice that?
http://www.housepricecrash.co.uk/forum/index.php?/topic/203556-are-the-shires-crashing/?p=1102903793
I was looking at 2 bed semis [in Milton Keynes] 3 or 4 years ago. Back then asking prices were between 140k and 170k …. Now you're looking at 240k to 300k. It's madness. I've been waiting more than 10 years to see prices fall but if prices don't start falling by this time next year I may have little option but to join the madness as I turned 40 last year and I'm not getting any younger.
There are the usual HPC tropes in there - “it’s madness”, “I’ve been waiting for prices to fall [yet I don’t, for all that, see myself as any sort of speculator]”. But I thought I’d work out his BCR as “I may have little option but to join the madness”.
Looking at Zoopla for a random 2-bed semi in Milton Keynes that's just gone under offer at that sort of price, I found one in Radcliffe Street. Looking at values in that street generally, I found this example:
http://www.zoopla.co.uk/property/23-radcliffe-street/wolverton/milton-keynes/mk12-5dj/14715223
2 bed semi, sold at £85,000 in 2000, worth £220,000 today. So that fits quite well with the type of house this poster is talking about.
If we say that its price has gone up in a straight line, that's about 6% a year. So the HPC poster's estimate of asking prices 3 to 4 years ago having been "between 140k and 170k" looks about right; by 4 years ago, the £85,000 house's value (in a straight line at 6% pa from 2000) would have been £171k. It wasn't a straight line, so he has it about right.
Its price ten years ago would, on the same basis, have been about £120,000. And the poster, who is 41, has been waiting all that time for a crash (and seems not to have noticed the one between 2008 and 2010). If he’s been waiting for a crash then we must presume he could have bought 10 years ago. Had he bought that house for £120k 10 years ago on a 100% mortgage (possible back then), then the payments would have averaged say £570 a month (at 3%), and he'd now owe £82,000.
Instead he rented. Now, to rent a 2-bed house in the same postcode today would cost about £900 to £950 a month. From this source
http://webarchive.nationalarchives.gov.uk/20160105160709/http://www.ons.gov.uk/ons/publications/re-reference-tables.html?edition=tcm%3A77-304792
...we can look up what has happened to rental costs by area over much of those 10 years. The average figure for March 1996 for the south-east, east midlands and east was 96.8; the equivalent figure for 2013, the latest year, it's 102.2. The difference is 5.3 points, so making a simplifying assumption that rent rises have also been linear, the rise over ten years to today would be 104.4. Hence if 104.4 = £900 a month, the rent ten years ago would have been 96.8/102.2 x £900, which is £835 a month.
So the average monthly rent over those ten years would be say £865, roughly £250 a month more than the mortgage (which would have been higher or similar initially, of course).
In total, then, he has spent £105,000 on rent over ten years, which is £30,000 more than the mortgage would have cost. To break even, he would need to own the house today for £30,000 less than the 2006 buyer still owes on the mortgage. This means he’d need to buy the house for £52,000.
As its value today is around £200,000, this is a BCR of about 75%. By next year he'll need to buy the house for £40,000, so a BCR of 80%.
My guess is that most crash trolls think prices “need” to correct by about 30 to 50%. I wonder how many of them realize that they actually need falls of about twice that?
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Comments
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Nice thread.
The CountOfNowhere, March 2015:
The CountOfNowhere, March 2016:Has the dam finally broken ?Collapse must be close...
(you can edit the title in advanced edit by the way)Don't blame me, I voted Remain.0 -
One of the oddest HPC tropes at the mo is the idea that BTLers are exiting the market.
All the signs are that in fact they are pouring in.
Incidentally, I make TCON's BCR to be about 33%.
He claims to have sold up and rented in 2007 and then completely missed the boat (although he doesn't grasp it in those terms) and is still speculatively short, waiting for a crash. I have just done what I did for the previous poster and looked up on Zoopla what 3 beds in Northampton go for. It seems to be about £250k to £300k. Looking at one road with houses offered at that price, we have Chestnut Road, Abington.
http://www.zoopla.co.uk/house-prices/northamptonshire/abington/chestnut-road/
The 'market activity' button says prices are up 28% over the last 10 years. If you look at the same data for over the last 5 years, you get much the same answer - in effect, all the gains started in 2011 or 2012 and the market was flat over the period 2007 to 2011. Anyway - in 2007 the £250k house of today would have been £195k; the mortgage payments at 3% would have been £925 a month (£100k over 9 years); and the balance owing today would be £141k.
Renting instead in that postcode costs about £700 a month and seems to have gone up around 5% over the last 9 or 10 years. So let's say the rent has averaged £8,200 a year for 9 years. So the Count has spent about £74k on rent.
This is £26k less than the mortgage would have been, so he could afford today to pay £141 + 26 = £167k for that house. He'd then be in the same position as someone who bought it 9 years ago.
As it would actually cost £250k, he needs prices to fall £83k, hence he has a BCR of 33%.
The funny thing about these short-speccers is that they all see a mortgage as a debt, and consider not having debt to be smart. They don't seem to see having a lifetime of unfunded rent to pay as a comparable liability, even though it's much the worse position (neither the amount nor the duration can be fixed).
I am sure I have read comments in which they applaud themselves for renting and having no debt at 2%, because they're craftily going to wait for interest rates to go up and trigger a crash, into which they'll buy, taking on debt at 6%.0 -
westernpromise wrote: »One of the oddest HPC tropes at the mo is the idea that BTLers are exiting the market.
All the signs are that in fact they are pouring in.
Incidentally, I make TCON's BCR to be about 33%.
He claims to have sold up and rented in 2007 and then completely missed the boat (although he doesn't grasp it in those terms) and is still speculatively short, waiting for a crash. I have just done what I did for the previous poster and looked up on Zoopla what 3 beds in Northampton go for. It seems to be about £250k to £300k. Looking at one road with houses offered at that price, we have Chestnut Road, Abington.
http://www.zoopla.co.uk/house-prices/northamptonshire/abington/chestnut-road/
The 'market activity' button says prices are up 28% over the last 10 years. If you look at the same data for over the last 5 years, you get much the same answer - in effect, all the gains started in 2011 or 2012 and the market was flat over the period 2007 to 2011. Anyway - in 2007 the £250k house of today would have been £195k; the mortgage payments at 3% would have been £925 a month (£100k over 9 years); and the balance owing today would be £141k.
Renting instead in that postcode costs about £700 a month and seems to have gone up around 5% over the last 9 or 10 years. So let's say the rent has averaged £8,200 a year for 9 years. So the Count has spent about £74k on rent.
This is £26k less than the mortgage would have been, so he could afford today to pay £141 + 26 = £167k for that house. He'd then be in the same position as someone who bought it 9 years ago.
As it would actually cost £250k, he needs prices to fall £83k, hence he has a BCR of 33%.
The funny thing about these short-speccers is that they all see a mortgage as a debt, and consider not having debt to be smart. They don't seem to see having a lifetime of unfunded rent to pay as a comparable liability, even though it's much the worse position (neither the amount nor the duration can be fixed).
I am sure I have read comments in which they applaud themselves for renting and having no debt at 2%, because they're craftily going to wait for interest rates to go up and trigger a crash, into which they'll buy, taking on debt at 6%.
Thats a good point renters should do a NPV of their rent from now until death and consider that as a debt.
Most likely the NPV of the rent would be a bigger debt than taking on a mortgage at least in the majority of places in the uk0 -
westernpromise wrote: »
I am sure I have read comments in which they applaud themselves for renting and having no debt at 2%, because they're craftily going to wait for interest rates to go up and trigger a crash, into which they'll buy, taking on debt at 6%.
While I agree with most of what you say on this thread, the point above, when taken in isolation isn't as daft as it sounds. If interest rates go back to what would have been considered normal pre crisis and stay there, then most mortgage holders will end up paying those 6% (for example) rates in due course. If that's the case, then there is much to be said for paying that higher rate on a lower balance, and with a lower risk of negative equity.
Now of course, as your other points suggest, in reality its nowhere near as simple as that. For that judgement to be right, prices have to fall far enough and fast enough for the "gain" for the HPCer to have covered their rental "losses" and to wipe out any equity that the person who bought instead would have accrued by paying off some of their mortgage.
In practice, anyone who's made that "bet" in London and the South East in recent years is has probably already lost to the point of no return (hence why I agree with most of your points). But if someone is starting from today, the idea of taking on less debt at a higher rate after a crash is not in itself silly logic, even if in practice they are likely to be wrong simply because the premise that rates will rise soon is likely to be flawed.0 -
What's a BCR please? Is it the point where someone not in the market breaks even because of an x% fall?0
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While I agree with most of what you say on this thread, the point above, when taken in isolation isn't as daft as it sounds. If interest rates go back to what would have been considered normal pre crisis and stay there, then most mortgage holders will end up paying those 6% (for example) rates in due course. If that's the case, then there is much to be said for paying that higher rate on a lower balance, and with a lower risk of negative equity.
Now of course, as your other points suggest, in reality its nowhere near as simple as that. For that judgement to be right, prices have to fall far enough and fast enough for the "gain" for the HPCer to have covered their rental "losses" and to wipe out any equity that the person who bought instead would have accrued by paying off some of their mortgage.
In practice, anyone who's made that "bet" in London and the South East in recent years is has probably already lost to the point of no return (hence why I agree with most of your points). But if someone is starting from today, the idea of taking on less debt at a higher rate after a crash is not in itself silly logic, even if in practice they are likely to be wrong simply because the premise that rates will rise soon is likely to be flawed.
Yes, if someone could accurately predict the size of a crash, the timing of a crash and the mortgage rate in place after said crash they could time a house sale/ purchase to best effect.
That someone isn't posting here or on HPC. I did see someone got something right on HPC the other day when they said 'it must be getting closer' - perfectly correct but it's the when that's all important.0 -
What's a BCR please? Is it the point where someone not in the market breaks even because of an x% fall?
Breakeven Crash Requirement:
https://forums.moneysavingexpert.com/discussion/comment/69968963#Comment_69968963Chuck Norris can kill two stones with one birdThe only time Chuck Norris was wrong was when he thought he had made a mistakeChuck Norris puts the "laughter" in "manslaughter".I've started running again, after several injuries had forced me to stop0 -
Yes, if someone could accurately predict the size of a crash, the timing of a crash and the mortgage rate in place after said crash they could time a house sale/ purchase to best effect.
That someone isn't posting here or on HPC. I did see someone got something right on HPC the other day when they said 'it must be getting closer' - perfectly correct but it's the when that's all important.
Yep agree with this 100%. You've just made my own point for me in a much better and more concise way! :T:beer:0 -
chucknorris wrote: »Breakeven Crash Requirement:
https://forums.moneysavingexpert.com/discussion/comment/69968963#Comment_69968963
Cheers. I skim these HPC threads at best.0
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