The Next Nail in the Coffin

chucknorris

economic wrote: »

so you are very confident that they would rise nominally? over what time frame? why are you so confident. this is what i mean when i say a lot of people assume prices will rise long term. i am not confused.

I am not confident that prices will rise, how many times do I have to say this? I don't know if prices will rise, fall or stagnate, neither do you! But what I do know is that my rental income exceeds the alternative of dividend income, which is why I have based my timing on known variables, i.e. income rather than second guessing which way the market will turn. It isn't just about selling, it is also about where you invest the equity.

This is what I posted this morning, no doubt you would have been one of those posters that said to me back in 2008 'You should have sold', but I'm up over £1m from the 2007 peak:

chucknorris wrote: »

Right now I could sell and walk away with more than a decent profit, you have already said on another thread that I am not selling because I just stay in the market forever (insinuating blind faith in the housing market). But that isn't true, I constantly analyse the value of selling, compared to staying in the market, and IMO opinion the value is to not sell (yet), not because of capital values, but because of income. If I did get it wrong and ended up enduring a correction, I would wait to sell at a better time, inconvenient, but not costly. In the 2008 correction, I have lost count of how many posters said to me, 'you should have sold before it happened' our total property value fell by over £1m, but since then they have increased by well over £2m.

economic

that suggests to me that you think eventually prices will rise in order for one to sell at a profit after buying the top. but how long does one have to wait? how do you know itll be within his lifetime? answer: you dont and i thin you are assuming too much.

yes you shouldnt care if its priced in dollars for your own personal day to day living as your costs/liabilities are all in sterling. however when people tak about how much their home equity has gone up and brag amount it (not saying you do as i do recall you are only concerned about income rather then capital values), they dont realise they would have been better off putting the money into the Dow and have made money on the rally AND dollar appreacitation. point is if you are talking about how much equity you made, you are talking about investing and you should look at performance through the eyes of international currency as otherwise the nominal gains one has made are very misleading.

mwpt

economic wrote: »

so you are very confident that they would rise nominally? over what time frame? why are you so confident. this is what i mean when i say a lot of people assume prices will rise long term. i am not confused.

I am very very confident that in 15 years time London house prices will be nominally higher than they are today.

That is all that is needed for my leveraged purchase of an abode to live in to make financial sense for me over this term of 15 years. I'm not smart enough to time the housing market.

However, over a longer time frame, I am less confident. I think changes in technology will reshape everything we know in the 20-40 year timeframe (the event will happen somewhere in that range) and in my opinion it will result in the desire to live in a crummy little 3 bed semi detached in an outer London suburb, plummeting. I hope I've reached my early retirement and sold up by that point.

EDIT: I own a crummy little 3 bed semi detached in an outer London suburb, which I am very comfortable in, but it is very far from my dream home. So no offence to people in similar situations.

Filo25

economic wrote: »

but point is in real terms london boom has not been a boom over the last 10 years if you price in dollar terms.

prices are cyclical like everything is. however some cycles are longer then others. time matters as well as price.

I'll bet it looks amazing over the previous 10 years though, given the strength of Sterling compared to the Dollar in 2006.

Back in 1996 Sterling wasn't much stronger compared to the USD than it is now.

Not particularly sure why you would price in USD in any case unless you are an international investor.

The depreciation of Sterling from its highs seen in 2007 or so, would undoubtedly be relevant to most of us if it had fed through to inflation, and hence significantly reduced the real Sterling gains, but that hasn't happened.

cells

economic wrote: »

im really quite shocked how stupid some people can be on this forum.

look - you all assume prices will go up long term and if there is a correction/crash they will just rebound. why are you so confident that will happen? because it happened in 2008/09? yeh ok good luck to you if you assume that.

i myself have sold and am buying because the economics of renting do not make sense so prefer to buy to live but i am certainly not buying for invesment at these prices. i rather invest in global trackers with US as overweight.

with a bit of thinking out of the box, one could determine that actually london prices have not gone up that much in real terms and international ccy terms. below is my personal example, of course you may have done better then me but it just shows that even though you think you made a lot of equity in fact its not as much as you think:

my seller bought in 2006 for £322k
i bought in 2013 for £465k
i sold in 2016 for £580k

thats a 80% gain in 10 years or 6% compounded. However if you price it in dollar terms (which is a lot betetr reflection of international value then pound) then its up only 26% in 10 years or 2.6% annually compounded - a bit lower then uk inflation. so in 10 years there has been 0 price change in real dollar terms.

interestingly my seller sold up as she moved to australia. she had made 45% nominally on the flat however GBP has fallen 30% vs. AUD and so she only made around 15% nominal terms and in real terms that would be pretty much nothing,

my view is that we will probably not see a sharp correction however prices will soon start to stagnate and in real terms an especially in international currency terms it will decline from here perhaps long term.

im still buying and having a large enough mortgage yet still manageable will help to preserve my wealth.

cherry picking currencies and time frames.

even with that you ignore that property is a geared investment so gains are multiplied.

Using your own example of your seller buying for £322 and the same house sold a decade later for £580 being an 80% gain. Sure if it was a cash purchase but if it was a 15% down purchase then the buyer put down not more than £50k and walked away with more than £300k or up 600% or compounded 20% a year

even if you jump to dollars or yen or chicken eggs to try and prove something your going to find it hard to beat that 20% compounded pa.

As another poster once said, bernie madoff had half the world investing in him with promises of just 10% while little old london property buyers managed 20% annual returns with no 20% fees to boot

cells

mwpt wrote: »

I am very very confident that in 15 years time London house prices will be nominally higher than they are today.

That is all that is needed for my leveraged purchase of an abode to live in to make financial sense for me over this term of 15 years. I'm not smart enough to time the housing market.

However, over a longer time frame, I am less confident. I think changes in technology will reshape everything we know in the 20-40 year timeframe (the event will happen somewhere in that range) and in my opinion it will result in the desire to live in a crummy little 3 bed semi detached in an outer London suburb, plummeting. I hope I've reached my early retirement and sold up by that point.

EDIT: I own a crummy little 3 bed semi detached in an outer London suburb, which I am very comfortable in, but it is very far from my dream home. So no offence to people in similar situations.

I too think the smart near AI software will kick in around the 20-40 year time frame. However I feel it will be positive for the mega global cities like London. Not only does London have a tech sector unlike stoke-on-trent so it will earn from this change but it is also geared to globalization in a way stoke or midlesbrough or darlington isnt. As the new tech makes the world a lot richer the world will buy more London services but poor old stoke will still be poor old stoke

michaels

Generali wrote: »

Real interest rates can only be 0% if there is no 'liquidity premium', i.e. people have no preference between spending and saving.

The only way that is possible is if people are consuming at such a high level that to consume any more would cause them to be less happy than if they consumed at the current rate.

The only way for your supposition to be close to being true is if people are indifferent between saving and spending. The level of consumer debt says to me that isn't the case.

I think one has to consider both demographics and income distribution when looking at what interest rate might result from balancing desires to save and spend. Increasing longevity is likely to increase the propensity to save of those employed but if the ratio of retired to working climbs above a certain level the reverse may happen. Similarly with income inequality many will be earning more than they need to live on whilst another group might wish to borrow to consume.

cells

economic wrote: »

that suggests to me that you think eventually prices will rise in order for one to sell at a profit after buying the top. but how long does one have to wait? how do you know itll be within his lifetime? answer: you dont and i thin you are assuming too much.

yes you shouldnt care if its priced in dollars for your own personal day to day living as your costs/liabilities are all in sterling. however when people tak about how much their home equity has gone up and brag amount it (not saying you do as i do recall you are only concerned about income rather then capital values), they dont realise they would have been better off putting the money into the Dow and have made money on the rally AND dollar appreacitation. point is if you are talking about how much equity you made, you are talking about investing and you should look at performance through the eyes of international currency as otherwise the nominal gains one has made are very misleading.

fantastic, only for most people the option isn't to go to the american or Japanese or Kenyan stock exchange and they dont have a hindsight machine.

For most people its to buy or to keep it in a bank account. For them property especially in London and geared up with a mortgage has been a massive improvement to their wealth much more so than hindsight merchants peddling rear view mirror investing. the 20% annual gains for a mortgaged property in London have pretty much beaten all other indexes or alternatives.

chucknorris

economic wrote: »

that suggests to me that you think eventually prices will rise in order for one to sell at a profit after buying the top. but how long does one have to wait? how do you know itll be within his lifetime? answer: you dont and i thin you are assuming too much.

yes you shouldnt care if its priced in dollars for your own personal day to day living as your costs/liabilities are all in sterling. however when people tak about how much their home equity has gone up and brag amount it (not saying you do as i do recall you are only concerned about income rather then capital values), they dont realise they would have been better off putting the money into the Dow and have made money on the rally AND dollar appreacitation. point is if you are talking about how much equity you made, you are talking about investing and you should look at performance through the eyes of international currency as otherwise the nominal gains one has made are very misleading.

But I haven't bought at the top, and I am not making decisions for anyone else, only for me in my very specific circumstances, it isn't my problem if someone bought at the top of the market.

You have to wait until you are happy with the price that you could sell it for, and the return on the equity when you invest it elsewhere. I'm happy with the price, but not the return on the equity invested elsewhere, but I will be when the base rate goes above 2%. If the base rate had gone up to over 2% last year, I would have sold my properties already.

You seem to think that I have only invested in property, that is not true. I have been investing elsewhere, and exclusively investing elsewhere since 2008, we now have over £1.25m invested outside of property. I am only talking about property equity because that is what we (and others) were discussing.

cells

michaels wrote: »

I think one has to consider both demographics and income distribution when looking at what interest rate might result from balancing desires to save and spend. Increasing longevity is likely to increase the propensity to save of those employed but if the ratio of retired to working climbs above a certain level the reverse may happen. Similarly with income inequality many will be earning more than they need to live on whilst another group might wish to borrow to consume.

individuals and institutions all have their own interest rates ones that are determined by the life expectancy of the individual or institution.

As economies develop this clearing price will fall towards zero as the life expectancy of individuals and institutions increases. At some point the life expectancy of institutions goes up to hundreds of years and at that point they are able to bid rates towards zero else anything much above zero would be unsustainable in the 100 year timeframe.

If institution A or country A has a short life expectancy maybe its always at war then the rates it has to work with and the economy it must sustain can only be short term high rates. If institution B or country B has a very long life expectancy maybe it has no challengers and is in a process of peace and growth then it can sustain long term investments and low rates.