Is property in a bubble?

chucknorris

merlingrey wrote: »

I suspect land will do better than property, but so will antiques and luxury brand watches and things like that.

Where would the yield come from, who would I rent watches and antiques to?

merlingrey

chucknorris wrote: »

Where would the yield come from, who would I rent watches and antiques to?

Lol well those would go up and not have a yield.

I probably didn't explain what i meant properly, if you take the stock market now compared to the peak in 2000 looking at the FTSE 100 for example is basically down about 60% because if you factor in 16 years of inflation the ftse would have to be 14,000 points now for you to break even in real terms, ignoring yield.

House prices will probably be a similar story whatever the peak price is will be the same price 20 years from now, again ignoring yield. But you might be down 90% in real terms vs inflation of everything else (a rolex watch costs £6000 but the same item might be £60,000+ in 20 years due to inflation)

But your yield on bonds in that time will be better.

As an aside i suspect online social lending/social finance would have a massive boom and will be the next bubble which will eventually replace the current banking system.

merlingrey

padington wrote: »

Wrong there will be more QE and more low interest rates and more currency devaluing and more immigration and less house building and more government support for first time buyers and guess what happens when all that happens ?

Both corporations and governments will rely on high interest rate borrowing (sovereign and corporate bonds) to stay solvent because the risks will be rising i think, the inflation will probably be spurred on by capital shifting back towards commodities in a stagnant economy .


You might misunderstand QE

Its important you understand the "money printing" only becomes printed money if there is a willing borrower.
And im saying there wont be any willing borrowers even at current rates so they can "print" gazillions it means nothing if nobody wants or can afford it.

When rates go up the QE becomes worthless to the wider economy except to keep banks lending to each other.
How does QE and low interest rates help governments borrow and countries lend to each other? answer ...it doesn't! the final phase of this mess ultimately is when governments need the money and cant raise it through taxes so they get it through higher interest rate bonds.

chucknorris

merlingrey wrote: »

Lol well those would go up and not have a yield.

I probably didn't explain what i meant properly, if you take the stock market now compared to the peak in 2000 looking at the FTSE 100 for example is basically down about 60% because if you factor in 16 years of inflation the ftse would have to be 14,000 points now for you to break even in real terms, ignoring yield.

House prices will probably be a similar story whatever the peak price is will be the same price 20 years from now, again ignoring yield. But you might be down 90% in real terms vs inflation of everything else (a rolex watch costs £6000 but the same item might be £60,000+ in 20 years due to inflation)

But your yield on bonds in that time will be better.

As an aside i suspect online social lending/social finance would have a massive boom and will be the next bubble which will eventually replace the current banking system.

Although most of our money is currently invested in property, we also have substantial investments in equities too. You are not only ignoring the (compounded) dividend yield of the ftse 100, you are also taking an extreme example of someone investing in the top of the market. I (partially) invested in the ftse at the top of the market, (2006 and 2014), but I also invested further at much lower levels too, as low as 4,000 (so that part of my investment is currently over 60% higher).

Our investment in property produces an annual income of about £100k and our dividend income is about £30k, so in the 10 year (max) timescale that I am working to, I would be passing up £1.3m of income, (and some of that is tax free) to invest in your suggested alternative of watches and antiques. Obviously feel free to invest in these yourself, but I'm not interested at all.

merlingrey

chucknorris wrote: »

Although most of our money is currently invested in property, we also have substantial investments in equities too. You are not only ignoring the (compounded) dividend yield of the ftse 100, you are also taking an extreme example of someone investing in the top of the market. I (partially) invested in the ftse at the top of the market, (2006 and 2014), but I aslo invested further at much lower levels too, as low as 4,000 (so that part of my investment is currently over 60% higher).

Our investment in property produces an annual income of about £100k and our dividend income is about £30k, so in the 10 year timescale that I am working to, I would be passing up £1.3m of income, (and some of that is tax free) to invest in your suggested alternative of watches and antiques. Obviously feel free to invest in these yourself, but I'm not interested at all.

I didn't suggest you buy antiques or watches, i did suggest bond yields would be higher though than equities and real estate in the future (obviously the bond value drops though as the rates go up).

I chose to ignore dividend reinvestment and real estate income to labor the point about asset values in nominal terms vs inflation.

Your investment in property produces £100k now but you're assuming the yield rises as the property value falls, this is true initially (as it is with stocks) but you need to keep in mind that as lending dries up and as interest rates rise the affordability for people and businesses changes so at best the yields remain the same.

The search for yield is one of the reasons interest rates were lowered because it spurs investors to take risk instead of staying in the safety of cash, and i'm saying its this aspect that will unwind causing things to go into reverse gear.

chucknorris

merlingrey wrote: »

Your investment in property produces £100k now but you're assuming the yield rises as the property value falls, this is true initially (as it is with stocks) but you need to keep in mind that as lending dries up and as interest rates rise the affordability for people and businesses changes so at best the yields remain the same.

The search for yield is one of the reasons interest rates were lowered because it spurs investors to take risk instead of staying in the safety of cash, and i'm saying its this aspect that will unwind causing things to go into reverse gear.

I'm confident my income will remain intact, I have been invested in property for over 25 years, and through two recessions. It will be quite some time before interest rates rise to anything where they were previously (circa 5%), they might even dip to 0.25% quite soon. Although there isn't much liquidity in the betfair market, the prices for this months BOE decision on interest rates are about:

10/11 - 0.50%
11/10 - 0.25%

There is no safety comfort for me in cash over the long term, it is certainly inferior to both property and equities. When I sell property it will be for both lifestyle reasons and because I need time to spend it, not because I think that it is a bad investment, it isn't, although due to recent tax changes, if I was starting out now, I would probably favour equities over property.

I'm not interested in the short term at this stage of my life, I am working to an estimated 28 years before I die. I don't think that I will be investing in bonds for along time yet, and certainly not while interest rates are so low.

chucknorris

merlingrey wrote: »

I didn't suggest you buy antiques or watches

But you did say that they would do better than property:

merlingrey wrote: »

I suspect land will do better than property, but so will antiques and luxury brand watches and things like that.

merlingrey

chucknorris wrote: »

I'm confident my income will remain intact, I have been invested in property for over 25 years, and through two recessions. It will be quite some time before interest rates rise to anything where they were previously (circa 5%), they might even dip to 0.25% quite soon. Although there isn't much liquidity in the betfair market, the prices for this months BOE decision on interest rates are about:

10/11 - 0.50%
11/10 - 0.25%

There is no safety comfort for me in cash over the long term, it is certainly inferior to both property and equities. When I sell property it will be for both lifestyle reasons and because I need time to spend it, not because I think that it is a bad investment, it isn't, although due to recent tax changes, if I was starting out now, I would probably favour equities over property.

I'm not interested in the short term at this stage of my life, I am working to an estimated 28 years before I die. I don't think that I will be investing in bonds for along time yet, and certainly not while interest rates are so low.

Well yes "cash is trash" except when you're lending it out and being compensated for the risk of the other person defaulting.

A bank and government can default, a current account holds your cash and there's nothing in law that says that it is your money, when you put cash in a bank or buy a bond, get a cash ISA etc it is no longer your property and they can default on it.

Current low rates suggest defaults are at zero chance of happening but when it all hits the fan it'll be more like a certainty without high rates to keep it together.

You don't expect even 5% rates, i expect rates to peak to 30% in some countries, if high rates fail then governments will use higher taxes/more austerity and if this fails they will use the printing press to print the debt away and give themselves money causing hyperinflation. Greece for instance can't print the debt away since it doesn't have its own currency so it is stuck with trying to borrow at high rates or austerity/taxes.

Hence when these risks rise people store their wealth in gold, valuable items and so on and they use cash to get yield.

0% interest rates tells the world theres no risks "please lend to us for no returns because your money is perfectly safe"

That's not the reality in my view, far from it.

chucknorris

merlingrey wrote: »

You don't expect even 5% rates, i expect rates to peak to 30% in some countries, if high rates fail then governments will use higher taxes/more austerity and if this fails they will use the printing press to print the debt away and give themselves money causing hyperinflation. Greece for instance can't print the debt away since it doesn't have its own currency so it is stuck with trying to borrow at high rates or austerity/taxes.

Hence when these risks rise people store their wealth in gold, valuable items and so on and they use cash to get yield.

0% interest rates tells the world theres no risks "please lend to us for no returns because your money is perfectly safe"

That's not the reality in my view, far from it.

I live in the UK, do you live somewhere else?

Where are you currently invested? My (excluding my wife's investments) portfolio is:

56% Investment property
25% Shares
18% Fixed pension
1% Cash

merlingrey

chucknorris wrote: »

But you did say that they would do better than property:

In terms of price yes, do i really need to emphasize that? you're quote mining out of context.

The context of the post you quote mined from was clearly speaking in terms of prices in the absence of yields i elaborated on that point when you brought it up for maybe the second or third time around.

Yes i know you don't get yield on those things and don't rent/lend them out, you're either being facetious or you assume me to be a few brain cells short of a jellyfish.

I mean to put it into context a house could be £250k and a can of coke could be 50 pence, if the house goes down to £225k and the can of coke goes up to 60 pence we can say that cans of coke "did better" than house prices.

That does not mean: sell your house and buy cans of coke does it?