A salutary time capsule of house price predictions - from 1996

HAMISH_MCTAVISH

westernpromise wrote: »

25% BCR I make it. At the outer edges of what we've seen before, but still possible.

Yep.

But it's in reality much, much worse than that once you examine how badly he loaded the equation against owning.

I suspect his true BCR is closer to 50%. And that he'd be close to £200K better off today had he bought rather than rented.

Not only that, but if he now rented it out instead of selling, his early retirement would be 15K to 20K a year better funded... From an asset purchase cost of 250K.

That's a fairly consequential decision from someone who has spent 9 years living like a pauper in order to squirrel away a huge fund that only gives them around 25K a year gross income for retirement...

paddyrg

Remember your choices are half chance. Bully for you if you were able to buy a house and catch the rising market. Plenty of people were having self-congratulatory forum posts about the gold they were buying 'demand only goes up hence I will only get richer', and bitcoins 'keep going up because it takes machines to mine them and electricity prices and scarcity keep driving up the price' or on a bigger scale, oil futures (which crashed) or China housing stocks (which tanked), etc.

It's great that you were on the right side of history, just don't get too smug.

mwpt

HAMISH_MCTAVISH wrote: »

Yep.

But it's in reality much, much worse than that once you examine how badly he loaded the equation against owning.

I suspect his true BCR is closer to 50%. And that he'd be close to £200K better off today had he bought rather than rented.

Can you show your workings? The guy is pretty frank and straight forward, I don't think he's got a vested interest in pretending his decision is less bad than it is.

I was the poster on his forum that kicked off the discussion with a comment under a different blog post. Same username, mwpt. I have posted my paper loss on a flat I could have bought in Wimbledon in 2007. I can show you my workings here:

https://docs.google.com/spreadsheets/d/1KahahmHWmfyFtjGRN5G1lrjArDI7qTeB_QRRO6v459s/edit?usp=sharing

Note that I have made assumptions on this. I assumed I took a 5 year fix at around 6% on the flat then saw my mortgage rate fall after that, so I put an average of 4% mortgage rate over the period just for simplicity. I set HPI at the exact % required which compounded resulted in the flat being worth the value it recently re-sold for (I watch rightmove). The rent figures were the exact rent figures for the time period, I rented in Wimbledon at the time and was paying £1150 to flat share with another person. Rents have gone up to about £1500 during that period. The purple line is now (2016), whereas year 1 was back in 2007.

Note: I add in a disposable compensation figure as it allows the sheet to sum up cash flows. This figure is not at all accurate, it is just the max out of either rented or buy outgoings pa, it's just there as a normalisation.

Also note, my BCR would have been 41%.

That's a fairly consequential decision from someone who has spent 9 years living like a pauper in order to squirrel away a huge fund that only gives them around 25K a year gross income for retirement...

That' very condescending. I admire the guy. Not everyone has a time machine to go back to 1990s or early 2000s with the knowledge that the government would bail out the housing market. I wish I did but I made my decisions then and I live with it.

mwpt

paddyrg wrote: »

Remember your choices are half chance. Bully for you if you were able to buy a house and catch the rising market. Plenty of people were having self-congratulatory forum posts about the gold they were buying 'demand only goes up hence I will only get richer', and bitcoins 'keep going up because it takes machines to mine them and electricity prices and scarcity keep driving up the price' or on a bigger scale, oil futures (which crashed) or China housing stocks (which tanked), etc.

It's great that you were on the right side of history, just don't get too smug.

Agree with this completely. This forum has a lot of the HPC spirit at times, just on the other side of the coin.

wotsthat

paddyrg wrote: »

Remember your choices are half chance. Bully for you if you were able to buy a house and catch the rising market. Plenty of people were having self-congratulatory forum posts about the gold they were buying 'demand only goes up hence I will only get richer', and bitcoins 'keep going up because it takes machines to mine them and electricity prices and scarcity keep driving up the price' or on a bigger scale, oil futures (which crashed) or China housing stocks (which tanked), etc.

It's great that you were on the right side of history, just don't get too smug.

The mistake he made was turning a short term punt on house prices into perma renting. Coming out on top from the former is down to chance, the latter less so.

economic

everything is a cycle - even london property.

i really dont think it can continue going up and i feel the cycle is about to turn...

mwpt

wotsthat wrote: »

The mistake he made was turning a short term punt on house prices into perma renting. Coming out on top from the former is down to chance, the latter less so.

No, the mistake you make is to equate outcomes with validating decisions. As another poster on that blog mentions, Taleb explains why that is wrong.

wotsthat

mwpt wrote: »

No, the mistake you make is to equate outcomes with validating decisions. As another poster on that blog mentions, Taleb explains why that is wrong.

That's not got much to do with what I said. A house price punt should be short term because the longer you own the less the initial purchase price matters.

As for Taleb; no doubt he's cleverer than me but I'll stick with judging the effectiveness of my decision making by monitoring the outcomes. Can't see the point of being wrong for the right reasons.

economic

wotsthat wrote: »

That's not got much to do with what I said. A house price punt should be short term because the longer you own the less the initial purchase price matters.

As for Taleb; no doubt he's cleverer than me but I'll stick with judging the effectiveness of my decision making by monitoring the outcomes. Can't see the point of being wrong for the right reasons.

the longer you own the less the purchase price matters???? are you sure abou tthat? are you one of those who thinks prices will go up for the long term? really really silly statement mate.

mwpt

wotsthat wrote: »

That's not got much to do with what I said. A house price punt should be short term because the longer you own the less the initial purchase price matters.

If you read the blog regularly you'd see he made the decision some time back that he disliked how the UK housing market worked and felt it wasn't a place he wanted to remain long term. So he concentrated on increasing his wealth until he could leave. He made the decision that he wasn't going to be buying to live here, so rented instead.

As for Taleb; no doubt he's cleverer than me but I'll stick with judging the effectiveness of my decision making by monitoring the outcomes. Can't see the point of being wrong for the right reasons.

Good luck.