Low rates mean its foolish to wait for a house price crash

mubeye

westernpromise wrote: »

In a low-HPI and low-yield environment, there can indeed be intervals where there is not much to choose between renting and owning. I doubt that you have been in one recently though.

I say this because if the house you're in would cost £35k in stamp duty to buy, it must be worth £900k (plus £35k stamp duty = £935k). The 2.5% yield you indicate points to the property being somewhere in the south-east or south-west, and therefore it is very unlikely that there has been "flat HPI" over the last 3 years. About 20% is more likely, meaning that 3 years ago you could have owned it (or something similar) for £750k plus £30k stamp duty = £780k.

So its price has probably gone up by £155k.

If you'd bought it in 2014 with a 90% mortgage at 2.09%, you'd have spent £104k in mortgage repayments, but the balance owing would now be £611k. The total cost to own it would thus be that £104k in payments, plus £611k owing, plus the original £75k deposit, plus the £30k stamp duty, which is a total of £820k.

If you had rented it at a 2.5% yield on its average value over those three years, you would have spent £62k on rent, but to own it today would cost you £900k to buy it plus £35k stamp duty plus the three years of rent you paid. That is £997k, i.e. £177k more.

For retning to break even versus buying, you'd need the price today to be £735k. The stamp duty would take that to £752k, the rent you've paid would take that to £816k, and the £75k deposit and £30k stamp duty you've had invested since 2014 have probably earned you another £4k. So you'd then occupy and own the same property for the same cost of £820k in either case. You would in fact need annual house price deflation of -0.67% over the last three years to break even.

It seems quite unlikely that this actually occurred wherever you are in the south-east.

It could be argued that your £105k cash stash would have made more than £4k over the last three years. It might, yes, but if in things like stocks and bonds that go up and down you'd have to be sure not to cash out at the wrong time - so you're having to call the market again. It could be argued that buyers have maintenance costs that renters don't; then again renters have relocation costs that buyers don't so over short terms these probably cancel.

What HPCers tend to forget is that when you buy you fix the price, and then the balance owing never goes anywhere but down. When you rent your rent tends to rise and even a very small percentage rise in house prices makes renting look poor.

Seems like HPCers are not the only end of the scale who are highly opinionated.

Anyway, to defend my case.

House value is 630k. Scottish stamp duty tapers steeper. Op specifically excludes London for purposes of argument, so why bring SE into it? It's a varied market, hence the OP choosing midlands.

Stocks are volatile in short term but steadier in long term, just like houses. Equities historically have always out performed UK housing over the long term. Positive HPI makes renting look bad only if the reinvested money doesn't outperform the housing market. Which on average, equities have always done. Stocks can be leveraged too, if you are into that sort of thing. (OP talks about cash purchase in main example) .

105k stash? You are mixing up the two properties. You should scale up the deposit if you want to compare.

Not sure why would lie about HPI. It is very stagnant on this street. Mainly due to new stamp duty imo. In the next street along, its all flats and HPI is a bit over the national average ie about 3%.

Anyway, i just wanted to make the point that HPCers are not the only ones with blind faith in their church. It's a very niche case however, so I accept your theory may hold true in general. But each case is unique.

wotsthat

GreatApe wrote: »

I used to think it silly of posters who said the best time to buy is always now but maybe they were right all along. Trying to time buying in a dip doesn't work and with low rates waiting for a HPC is likely to be a costly mistake

If someone wants to buy, has a deposit, the finance and has found a place then now is always the time to buy.

What's the point of renting (which isn't what they want to do) and waiting for a crash (which they likely have no special insight)? If someone really wants to buy and is sitting on a deposit and can get a mortgage they'll spend a load of time looking at Rightmove anyway.

Much better to get rid of the brain clutter and buy. Prices will go up and down whatever and it takes up less headspace worrying about whether your house will fall in value compared to trying to time a purchase.

mubeye

wotsthat wrote: »

If someone wants to buy, has a deposit, the finance and has found a place then now is always the time to buy.

What's the point of renting (which isn't what they want to do) and waiting for a crash (which they likely have no special insight)? If someone really wants to buy and is sitting on a deposit and can get a mortgage they'll spend a load of time looking at Rightmove anyway.

Much better to get rid of the brain clutter and buy. Prices will go up and down whatever and it takes up less headspace worrying about whether your house will fall in value compared to trying to time a purchase.

Because depending on where you live, housing isn't always the best performing asset class for the capital?

Stocks have both dividend yield and capital growth just like housin. Combined, stocks have always beaten property. So it is a bold claim to state it 'always' better to buy vs rent. Surely it depends on the local market, and your opportunities for the capital.

Fully agree though that if you want to own a house for some psychological reason, then you shouldn't even think about comparing returns. Just do it!

mubeye

I've heard it argued that if Donald Trump had just stuck his cash in an index fund and rented his entire life and never invested in real estate at all, he would now be considerably richer.

economic

mubeye wrote: »

I've heard it argued that if Donald Trump had just stuck his cash in an index fund and rented his entire life and never invested in real estate at all, he would now be considerably richer.

You don't consider taxes which would make a huge difference. Also he would never have become the president if he just became a passive stock index investor.

wotsthat

mubeye wrote: »

Because depending on where you live, housing isn't always the best performing asset class for the capital?

Where do you live whilst waiting for a home to become the best performing asset class? Isn't it better to consider whether renting or buying offers the lowest accommodation costs?

Anyway, renting isn't the same as owning so if you want to own you should avoid it for all but the shortest periods of time.

mubeye

economic wrote: »

You don't consider taxes which would make a huge difference. Also he would never have become the president if he just became a passive stock index investor.

I hadn't thought of that. It is a good point.

Anyway, I'm just trying to make the point, that it's not as black and white as either the extreme bulls or bears preach. Trump is case in point it seems

wotsthat

mubeye wrote: »

Anyway, I'm just trying to make the point, that it's not as black and white as either the extreme bulls or bears preach. Trump is case in point it seems

There are no extreme bulls. I don't think there's anyone who would argue buying yields a lower cost of housing in all circumstances. It's a decent enough generalisation to say that the longer the time frame the more black and white it becomes.

chucknorris

mubeye wrote: »

Combined, stocks have always beaten property.

I'd argue that leveraged property has easily outperformed the stock market over the long term, particularly over the last 25 years or so. But I accept that there will be certain localities where that might not apply.

I'm not against the stock market, we have over £1m currently invested in equities, and will probably invest quite a bit more as we have just sold one property, and we about to exchange on another.

mubeye

wotsthat wrote: »

Where do you live whilst waiting for a home to become the best performing asset class? Isn't it better to consider whether renting or buying offers the lowest accommodation costs?

Anyway, renting isn't the same as owning so if you want to own you should avoid it for all but the shortest periods of time.

Live where ever you want to live? There is plenty of good rental stock available. The higher you go the lower the yeild.

For me it is less mental overhead to hire, not more. eg, owning a car would be a massive hassle for me. Ditto housing.

All I'm saying, renting doesn't necessarily cost more. If you invest the capital well, you could even make a profit.

This isn't market timing as such. A rising tide lifts all boats, and all that .It's about having control of your risk and liquidity.