BTL - understanding "real terms"

RPI is the traditional benchmark for "real terms" calculations.

but you can invest in FTSE trackers so it is one valid measure, FT250, All share are others also with trackers available.

unless social / demographic trends means there is differential inflation eg more high earners wanting big houses with tighter planning and policies reducing their supply. Conversely lots of old folk looking to downsize create demand for small houses and surplus of big ones.

I agree that yuo buy and sell in the same market though.

cash NPV analysis suits me best, insert your opportunity cost of capital and inflation assumptions and away you go.

Phil

They haven't; the ODPM publishes house price data back to 1930 and I have inflation (RPI) data back to 1956 (although I believe there is more historic data available) to extent the comparison.

See

Decade long real house price declines -

1988 1998

Daytona

Further -

Longest real house price declines -

Peak Surpassed Years

1987 1997 10

Daytona

Extraordinary link and very scary.

Column B is madness. I personally believe (from looking round the area I live in in SW London) that immigration is hugely higher than the high figures being banded about, and that (judging from the number of extra cars there seem to be parked everywhere) people are doing what they did before the war, doubling up in houses, one family upstairs another close friend or family's family downstairs.

I don't think I'll be playing double-or-quits on a BTL at this moment.

I've just started looking at renting a flat in SW london, 3 1/2 years after I left the market there, it seems I can get an equivalent flat around 8% less than I was able to back then, and there's a lot more choice. I wouldn't touch BTL in SW London, with that experience.

Jim.

Where are you getting your figures from? Isn't it the Sum() of Col F from 1948 to 1947 (giving a conventional 10 year decade :) ), and doesn't that show:

1973-1982

as the decades in which house prices fell?

Interesting spreadsheet BTW, people of my school-leaving-age (1971) were buying into the property market at the best moment ever, house prices in (say) 1975 rising by 7.3% but falling in real terms by

That's a very interesting spreadsheet. A couple of points:

- between 1947 and 1982 real house prices increased by only 11%. 1092 gave a trough in the price/earnings ratio of 2.9. Returning to that value would put house prices down to about the £80k mark, a fall of close to 50%.

- between 1982 and 2003 real house prices increased more that three-fold, at a real annual rate of about 5.5%.

- the 'affordability' chart appears to show good affordability in 2003. However, it neglects paying off the capital sum. I wonder how the chart would look if paying off over a 25 year period was taken into account (putting aside poor endowment policy returns)?

MRG

Sorry, I changed the house price data from the now defunct CML/DETR series to the longer running ODPM series which goes back to 1930 & also added inflation data back to 1947 after writing the post.

It does highlight the differences between the series ! I may well break out the different series on to separate sheets to make it easy to keep track of the differences.

Daytona

Repayment mortgage figures are on the "Annual" sheet. Sorry it's a bit scattergun - I'm more interested in collecting and comparing the figures than presentation because I figure that the people reading it can take a copy and play around with the figures themselves

Daytona

In article , Daytona writes

Daytona, sorry it wasn't meant to be a criticism, just an observation. You've done a marvellous job compiling all that data. As a lurker, on the Motley Fool PMT board I just wonder how far the residential property market is going to fall this time: when people realize the UK boom is just part of a more world-wide credit bubble. MRG

Well, I *was* going to ignore this thread, but...

Yes it does. Apologies if my English isn't perfect, I tend to speak normally rather than in the public school vernacular.

And this is the reason why I chose to reply. I didn't state that prices had risen *in real terms*, and it's disingenuous of you to quote me above and then start a thread that appears to be based on something I didn't say. If you cannot believe that prices have gone up in real terms that's all well and good, but your selective snipping and quoting makes it look like you're refuting a statement that in reality I have never made.

Like yourself, until Daytona's research I had no idea whether prices had gone up in real terms or not. However, I do know that the average price has risen. The Office of the Deputy Prime Minister has a wealth of statistics on house prices (amongst other social stats) going back to the Thirties.

A BTL is an investment, why would you compare it against wages? As I also stated on the other thread (also snipped, I notice) "If the investment pays for itself (i.e. good rental yield, after taking into consideration all costs including management of the property)". That takes care of examining the "running costs" of the investment, so we can then look at the relative performance of the equity against the (lost) opportunity of other investments.

The FTSE is only one other investment opportunity. What about AIM, OFEX, Cash ISAs, Bonds, savings deposit account? And why do you assume that the FTSE is no guide when there are all manner of tracker funds? One fund (I forget which, there's a big poster for it on my local Post Office) even guarantees to return 105% of the FTSE increase.

Sure, all other things being equal, an equal percentage rise on all properties will result in them being proportionally the same before and after the rises. At least we agree on something :-)

No, because you've missed all manner of things, not least the gearing effect of owning property. A BTL is a mini-business - there are startup costs, running costs, customers (tenants), etc, but provided these revenue costs are break-even then a 20% deposit on a property rising 5% a year (compounding and on the total value, of course) will roughly return your deposit back in four years. How many other investments can say that?

Yes there is a risk, but these can be largely minimised through the use of surveyors, solicitors, letting agents and the like, and a bit of common sense. No-one's forcing a good prospective BTL-er to buy in SW London if the cashflow or business prospects are not right.

Shano

I apologise for massively snipping everyone, I like Mailgate but that is it's only downside, mass editing or mass snipping.

"a 20% deposit on a property rising 5% a year"

Change "rising" to "falling" and see whether your "mini-business" theory still holds. Predictions that include historical unlikelihoods are not predictions, they are gambles and on this occasion you are gambling against the odds.

It OK - it wasn't taken as such

Yes, I contribute now and again. I used to read it more frequently, but it doesn't teach me anything new so I don't read it much nowadays. The same with PIP except that's degenerated further, to the point where legally incorrect advice is often given.

Cheers

Daytona

These were not decade long continuous declines, there were simply a few really bad years which cancelled out the increases in other years.

Thanks for that info. Here's a link to RPI data back to June 1947:

Thanks - I updated the spreadsheet with this soon after writing the post. It seems I omitted the earlier RPI because I didn't have house price data beyond that point.

Yes please ! Email me via my webpage

A great collection of links for sources of historic data is

Thanks

Daytona

I've just found it back to 1800 via Roy Davies's page, thanks.

Daytona