Housing market continues to slow....

Hunnymonster

Pheno wrote:

Your intuition is not necessarily correct - it all depends on the maths.

Have you ever calculated the total interest payments on your morgage over 25 years? It's huge. This is money "down the drain" in exactly the same way rent money is.

Currently with house prices so high, and rental yields so low, renting can, in many cases, be cheaper than buying even in the long term.

Look - to me (and it seems I may be totally alone here) my house is my home first and foremost. The fact that it may now be worth more (or less) than I paid for it when I bought it is totally immaterial (unless and until I want to sell it).

At the end of the mortgage period, you have an ASSET - at the end of a rental period you have chuff all (your landlord will have a nice asset that you paid for though), so exactly how is this money down the drain - sure you've paid to service the debt, but all the time you're accruing an asset - an element at least of the mortgage payment is yours as you chip away at the capital.

Looking back at the long term growth (say 1969 - 2004) that average (in Scotland) is 9.3% per annum (I think it's over 10% in England) - where exactly are you going to get that kind of sustained growth and a fixed (read tangible) asset to back it up ?

Pheno

NickMidgley wrote:

OK, let's say you're 30 years old now, will live until you're 80 and want to live in a two-bedroomed flat.

A quick check on rightmove says that you can buy one for £150,000, or rent an equivalent property in the same area for £750 pcm. Taking a standard 5.75% repayment mortgage over 25 years, the monthy repayments are £943. Renting might seem like the cheaper option, but question is: how much are you going to pay over the rest of your lifetime?

If buying: £943 x 12 x 25 years = £282,900, AND you're the owner of a two-bedroomed flat, whatever that may be worth in 25 years' time.

If renting: £750 x 12 x 50 years = £450,000, and the flat still belongs to someone else.

You missed out the £200 per month difference, which the renter could put in equity or a cash ISA.

BargainHunterCat

I have to say whilst I'm no expert, having studied economics (a bit ) I understood that markets tend to mimic wave patterns so a future trough is inevitable after such a high peak.

Also I came across some revealing articles in https://www.economist.com which confirmed my hopes (what can I say, soz but I'm a first time buyer currently priced out of the market!)

Whilst these articles are written mostly from the US perspective, the UK is mentioned specifically and much of it is pertinent to us.

Hunnymonster

Pheno wrote:

You missed out the £200 per month difference, which the renter could put in equity or a cash ISA.

And you missed out that the rent is sure to rise inexorably over the 25 years - convenient eh ?

Pheno

Hunnymonster wrote:

Look - to me (and it seems I may be totally alone here) my house is my home first and foremost. The fact that it may now be worth more (or less) than I paid for it when I bought it is totally immaterial (unless and until I want to sell it).

Yes, that's fair enough and its a different argument entirely. If you'd left it there then there would be no reason for me to post!

However, you then go on to talk about it as an investment though, and that's what I'm interested in talking about.

Hunnymonster wrote:

At the end of the mortgage period, you have an ASSET - at the end of a rental period you have chuff all (your landlord will have a nice asset that you paid for though), so exactly how is this money down the drain - sure you've paid to service the debt, but all the time you're accruing an asset - an element at least of the mortgage payment is yours as you chip away at the capital.

If you invest the money you save by renting in the stockmarket then at the end of the period you have assets.

Think of renting as borrowing money from a landlord and investing extra into shares or bonds, whereas a mortgage is borrowing from a bank and investing any extra into property. Which is the best investment depends on the rates of interest you are having to pay on what you've borrowed and the rate of capital accumulation on what you're investing.

Hunnymonster wrote:

Looking back at the long term growth (say 1969 - 2004) that average (in Scotland) is 9.3% per annum (I think it's over 10% in England) - where exactly are you going to get that kind of sustained growth and a fixed (read tangible) asset to back it up ?

In the 20th century stocks out performed housing in every 10 year rolling period.

Pheno

Hunnymonster wrote:

And you missed out that the rent is sure to rise inexorably over the 25 years - convenient eh ?

There's also inflation, insurance, fees, interest earnt on savings, house price inflation and other variables. Since NickMidgley was doing a "back of the envelope" calculation I didn't want to make it unnecessarily complicated.

Convenient? Why are you so aggressive?

Sput2001

Hunnymonster wrote:

And you missed out that the rent is sure to rise inexorably over the 25 years - convenient eh ?

Indeed. Even if you allow for a modest rent rise of 3% per annum, in 50 years time the annual rent will be £39,445, or £3,287 a month. Over the whole 50 years you'll have paid out £1,045,627 with no asset at the end of it...

Pheno

Why did you edit your post to add in the 3% rent rise but still leave out the £200/month surplus for the renter? Also, could you show how you arrived at the grand total of £1,045,627?

Pheno

BargainHunterCat wrote:

I have to say whilst I'm no expert, having studied economics (a bit ) I understood that markets tend to mimic wave patterns so a future trough is inevitable after such a high peak.

Also I came across some revealing articles in https://www.economist.com which confirmed my hopes (what can I say, soz but I'm a first time buyer currently priced out of the market!)

Whilst these articles are written mostly from the US perspective, the UK is mentioned specifically and much of it is pertinent to us.

I spent far too long studying economics Ironically one of the things which put me off doing a phd was the insane maths associated with analysis of.... rational BUBBLES

It isn't true that "what comes up must come down". But if there is a sudden dramatic increase in value you better have some extremely good new variables to explain why it is a long term shift rather than a cyclical peak. I can't really see what those are for housing.

Sput2001

Also, could you show how you arrived at the grand total of £1,045,627?

Take an annual rent of £9,000, apply 3% annual compound interest to it over a fifty year period, then add the rent for each of those 50 years together.

e.g. Year 1 = £9,000, year 2 = £9548.10, year 3 = £9834.54 and so on.

Sure, at first the renter will have £200 pcm extra to spend, but that will gradually erode as the annual rent increases. In fact, after about 10 years the buyer will be better off on a month by month basis than the renter - assuming a 3% p/a rent increase. AND after 25 years, the buyer has no monthly outgoings at all, unlike the renter.