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

GreatApe

mubeye wrote: »

If property is so much better, why don't the fund managers invest their cash in REITS?

property is not one asset class, in London and the SE its done very well and if these fund managers could send a message back 10 or 20 years to themselves one of the investments they would tell themselves to buy would be geared inner London residential property

Also who is talking about fund managers we are talking about the local teacher or nurse who is renting for £650 per month and if it makes sense for him to buy the house for £130,000 with a 5 year fix 80% LTV mortgage or wait for a crash.

I don't argue with the 130k leveraged example. But as we are seeing in central london, the more expensive property becomes more attractive to rent in a stagnating market. There are also other examples where it is not pointless. Are you cherry picking and ignoring opportunity cost?

The only realistic opportunity cost for the majority is not lost opportunity buying rightmove shares that go up 3000% over 5 years the only realistic opertunity cost lost for most people is losing 1% savings rates on their 20% deposit to buy the house.

MobileSaver

mubeye wrote: »

Selling ,moving and buying a house has a high transaction cost. If you want to move frequently, it is a very financially influenced decision.

If you move frequently then even renting has significant transaction costs; deposit, credit check fees, reference check fees, admin charges, first month's rent up front etc.

Fundamentally though, if you buy a house then in 99.9% of cases you are the one who decides when/if you move again; as a renter you rarely have more security than 6 months before you could be told you have to move on...

lisyloo

If you've got the Midas touch then, fair enough

I don't have the Midas touch but I do get a (certain) 45.8% uplift on any money I put into a pension compared with taking it to put into property.

If property is so much better, why don't the fund managers invest their cash in REITS?

I think the point is that buying property is so much better if you need to pay for somewhere to live. Of course it's entirely different if you are merely looking at it as an investment and not including the costs of putting a roof over your head.

If you move frequently then even renting has significant transaction costs; deposit, credit check fees, reference check fees, admin charges, first month's rent up front etc.

Ok, but deposit you should get back, first months rent is rent not an additional cost. I think we paid about £300 in fees for our latest rental, whereas stamp duty is often a 5 figure sum and that's completely dead money, so yes there are costs but lets be realistic about the size and what you get for them.

Fundamentally though, if you buy a house then in 99.9% of cases you are the one who decides when/if you move again; as a renter you rarely have more security than 6 months before you could be told you have to move on...

I agree with your point but not the high figure. Home owners sometimes have to move due to sickness, redundancy, death and divorce - we know that around half of marriages end if divorce so I don't agree with 99.9%. I do agree that you don't have the variable of a landlord (most landlords like to keep good tenants and it's not always that big a deal to move), but agreed you're not in the hands if the landlords circumstances or choices.

wotsthat

lisyloo wrote: »

I don't have the Midas touch but I do get (certain) 45.8% uplift on any money I put into a pension compared with taking it to put into property.

Buying a house doesn't mean you can't continue to get that uplift.

For mere mortals we know we have to live somewhere and the choice is whether renting or buying is better/ lower cost. I think you can count on one hand the number of people who rent because they're getting such a great return on deposit money.

In my case I determined buying was the better route. In fact it's turned out I can a lot more money into my pension as a result.

mubeye

wotsthat wrote: »

Buying a house doesn't mean you can't continue to get that uplift.

For mere mortals we know we have to live somewhere and the choice is whether renting or buying is better/ lower cost. I think you can count on one hand the number of people who rent because they're getting such a great return on deposit money.

In my case I determined buying was the better route. In fact it's turned out I can a lot more money into my pension as a result.

Firstly, just want to restate, that the topic of the thread is specifically about negative growth scenarios over 5 years and whether it is still pointless to rent, even if there is a modest crash.

And I'm not contesting the cited 130k apartment at 6% yield example. But that is quite specific, so still want to argue that it is not always pointless to rent.

People who rent by choice are not 'that' rare. I know more than 1 hand's worth. Outside of the SE there are some peculiar microclimates. For instance I rent a property that would cost about 670000 to buy including stamp duty. The rent is 1400 a month. Thats less than 2.5% yield. The property has depreciated by about 1% a year for various reasons. With the deposit in an index tracker (which literally millions of common folk do, it's not niche at all) , then buying is not a clear winner in my case.

UK tenancy rights are medieval right now, in general. But that is slowly changing. I know someone with a 5 year lease. So renting doesn't necessarily equal instability.

I don't have a clue about London, but maybe the same sums would apply to a slowly depreciating Chelsea flat that costs 750k, which falls 10% over 5 years? Would it be pointless to rent in this (not entirely absurd) case? I suspect that answer is, it depends. There are lots of variables, and maybe it is not a simple yes or no. Is all I'm saying.

Re 1% saving rates vs property returns. Why not compare like for like, and look at interest rates for savings options that lock your money away for 5 years minimum, and have an element of risk. (just like property) You get more than 1% for that kind of stuff.

wotsthat

mubeye wrote: »

Firstly, just want to restate, that the topic of the thread is specifically about negative growth scenarios over 5 years and whether it is still pointless to rent, even if there is a modest crash.

If there's a modest crash and you have the inside track on when it starts and ends then there's no point buying. You should rent.

mubeye wrote: »

People who rent by choice are not 'that' rare. I know more than 1 hand's worth. Outside of the SE there are some peculiar microclimates. For instance I rent a property that would cost about 670000 to buy including stamp duty. The rent is 1400 a month. Thats less than 2.5% yield. The property has depreciated by about 1% a year for various reasons. With the deposit in an index tracker (which literally millions of common folk do, it's not niche at all) , then buying is not a clear winner in my case.

People renting by choice isn't rare - the idea that they're doing so because they're coining it in on their would be deposit is.

If the place you live in is consistently falling in value by 1%, you only pay 2.5% yield in rent and you're turning double-digit growth on the deposit then you should rent.

mubeye wrote: »

So to answer the OP. If there was a 10% crash, yes, it would make sense to have rented in some cases. So it is not 'always' pointless as some suggest above, IMO. And if you think I'm rare, well I suspect the same sums would apply to a slowly depreciating Chelsea flat that costs 750k, which falls 10% over 5 years. Would it be pointless to rent in this (not entirely absurd) case? The answer is, it depends. There are lots of variables, it is not a simple yes or no. Is all I'm saying.

If you know a Chelsea flat will fall in value by £75k over 5 years then maybe it's better to rent it.

The argument isn't about whether there are circumstances when renting will be cheaper over the long term but whether, in an era of low interest rates, it's worth taking a punt on your ability to accurately forecast house prices.

mubeye wrote: »

Re 1% saving rates vs property returns. Why not compare like for like, and look at interest rates for savings options that lock your money away for 5 years minimum, and have an element of risk. (just like property) You get more than 1% for that kind of stuff.

Not paying rent or a mortgage is a key part of my retirement strategy. I don't want to take any risks and buying guarantees this.

Being able to get 2% on cash vs 1% cash is neither here nor there.

Windofchange

There is an underlying supposition here that waiting for a crash is a choice. There are plenty of people (certainly in London / S.E.) for whom waiting for a crash is their only option.

lisyloo

Buying a house doesn't mean you can't continue to get that uplift.

If does if you need to take the exact same money as income via PAYE to buy the house as opposed to putting it into a pension.
Or are you saying there is some way to buy property through a pension wrapper????
I am aware that you can buy property funds via a pension wrapper but I don't think you can buy your own home that way.

lisyloo

I think you can count on one hand the number of people who rent because they're getting such a great return on deposit money.

I doubt it's simply that factor alone. They may also have short term work contracts, have long term plans to live elsewhere or a belief that prices will be lower as well.

I did a comparison for my own circumstances (second home so CGT, 45.8% tax relief available on the exact same amount of money if put in pension).
I did not include the extra 3% stamp duty because that wasn't in place at the time.


I made assumptions of 3% capital increase and 3% rental increase, probably something equally conservative for pension fund gains (so it was conservative on BOTH sides).
I included service charges, transactional costs etc.
With my assumptions it turned out that the cut-off point for that scenario was 9 years i.e. less than 9 years I was better off renting.


The capital increases have shown my 3% assumption to be too pessimistic.


I don't have any argument that's it's better to buy a home if you know you are going to be living in one place for a long time.

mubeye

But if you have no idea whether prices go up or down. buying is the punt. You are gearing up and betting on a rise with leverage. How is that less risky than renting. If the odds of appreciation are 50/50?