house prices rising efficianados gone very quiet?

Troy Steadman wrote in news: snipped-for-privacy@y38g2000hsy.googlegroups.com:

If I remember correctly, you could not get a mortgage from a bank before the 1980s, only from a building society. The building societies lent their customer's money - not money borrowed from the finacial market. Apparently that was a stable system. It was only when banks were allowed into the house mortgage market that problems arose.

gbh

Reply to
GBH
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Yup. But the typical mistakes the "rent is dead money" brigade tend to make are:

1) Intentionally buying short term - eg 2-3 years (eg people who buy their kids a property while at university!) 2) Buying a far bigger property than they were renting (eg going from renting a shared house with 3 people to a similar value property all to themselves). 3) If they can't afford the property they desire, believing that the quickest way to get there is the "property ladder", ie buying the most expensive property they *can* afford and moving upmarket in stages.

Of course with the rampant house price inflation seen in recent years any of these strategies would have been financially beneficial. But completely disasterous for someone who did it last year!!

But based on historical averages, none of the above are sensible financially (although of course there may be non financial reasons for using them).

Reply to
Andy Pandy

"Andy Pandy" wrote

Glad you agree!

"Andy Pandy" wrote

Are you sure? ...

1) Spreading (say) 5% total buying/selling costs over the 2-3 years is about 2%pa extra, added to the 1-2%pa difference between average mortgage interest and average house appreciation is an average cost per year of 3-4%. Still cheaper than 4.5% renting! 2) If they are still effectively paying the same amount overall, yet getting much more property for their money, then that means they're getting the extra **for free**. How on earth is getting something for free, not "sensible financially"?! 3) Applying my reply to (1) above successively, we see that it's also better to use the "property ladder" than renting, so (3) is also "sensible financially".

"Andy Pandy" wrote

Even more reason to buy!

Reply to
Tim

It's not particularly sensible to get something for free which you don't actually want or need. Of course it doesn't hurt, and the want or need may come after the event, but would it not be even more sensible to spend less money, e.g. as much as renting a place would cost which is smaller than you need, but for the same price buying something which then *is* as big as you need, thus making sure the free bit is actually useful?

Reply to
Ronald Raygun

Absolutely - I had to re-read it but, yes, I agree with everything you wrote above. Makes a change...doubt it'll last however...

Yes.

First of all 5% for buying *and* selling is very optimistic. For a house over

250k stamp duty alone is 3%.

Secondly you need to look at the flexibilty of renting. In the example of a student, or perhaps a contractor on a 2-3 year contract in some place, when the course/contract ends they may need to move somewhere else. They'd be lucky to get a sale to neatly tie in with when they move out, so an allowance for paying mortgage interest when nobody is living in the property needs to taken account of.

Eh? How are they paying the same amount overall? I was comparing 3 people sharing the rent with 1 person living alone in the same value property.

Nope. 1) is irrelevant to 3).

An example for 3) is someone who lives in a 100k house. He wants to live in a

300k house. But he can't afford the 300k house, however he could afford a 200k house.

In order to get to the 300k house as quickly as possible, should he buy the

200k house, or should he carry on living in the 100k house?

You'll need a pretty good fiddle factor to argue that he should buy the 200k house, based on the assumptions in your first post. I look forwards to giggling at it...

Reply to
Andy Pandy

"Ronald Raygun" wrote

I'd assume that somebody who is buying a certain sized house will have already decided that they do "want" that much space, even if they don't "need" it.

Reply to
Tim

"Andy Pandy" wrote

I was considering a house under 250K -- when SD(LT) is only 0-1%. [Perhaps the 5% quoted was a little high...!]

Do you think the student kids in your example need a more expensive house than that?

"Andy Pandy" wrote

Good point. How long do you think we should allow for? [Don't forget, we're considering historic averages, not current conditions.]

Also, while we're considering refinements to the analysis, what LTV do you think we should allow for?

"Andy Pandy" wrote

I was replying to your general comment ("Buying a far bigger property than they were renting"), not your specific example. I then started my example with an "if"...

"Andy Pandy" wrote

Well, obviously the answer to that question is "neither". For instance, selling/tenanting the 100K house and living in a caravan instead, is likely to get them to the 300K house quicker.

But if it is a choice between buying the 200K house or renting a similar (200K) house, [or even a choice between staying in the

100K house or renting a similar (100K) house], then I still say that buying will be better ("based on historical averages", as you said).

"Andy Pandy" wrote

Are you giggling now? I can't see any fiddle factor...

If he wants to live in a 200K house now, yes he *should* buy it (rather than renting it).

Similarly, if he is happy to live in a 100K house, then he shouldn't be renting that, either.

See?

Also : if he's happy to live in a caravan, he should probably buy that instead of renting.... ;-)

Reply to
Tim

The annoying thing is that now that the long-awaited credit bust is happening, I'm too busy keeping up reading articles on it to pop into housepricecrash and help celebrate. I've only really managed one serious post there in the whole year.

FoFP

Reply to
M Holmes

Very busy, both at work and reading about 100 articles per day from prusentbear, housepricecrash and other resources. I did contribute a couple of articles to One magazine though.

I'd love to see Nouriel Roubini featured in a house price programme. To complete the fantasy Leigh, G.Skene and Satayit Das would be co-presenting.

FoFP

Reply to
M Holmes

3.524 months.
94.768%.

Then it's irrelevant to my point 2).

Indeed. But out of the 2.

But it isn't. It's a choice of staying in the 100k house (as owner), or buying the 200k house.

Yes. But that's not the choice.

The "property ladder" premise to which I was referring in 3) as a mistake people make, is that it is assumed that the best way to get to an expensive house is to move upmarket in stages.

Well you've disappointed me. I was expecting "the joy of living in a 200k house minus the joy of living in a 100k house" factor.

You've just avoided the question by changing the choices. Most unsatisfactory.

Ah ha! Rather than a fiddle factor you've used the politicians trick. Answer a completely different question to the one you've been asked!

Nice one. I think Gordon is after spin doctors.

Reply to
Andy Pandy

The Halifax index has a real price drop of 15% already in the last year, with falls accelerating. I'll be surprised if we're not about 20% down YoY by xmas. By the end of next year, I expect California style falls of

30% down YoY in the areas where the bubble really bid up prices.

Everyone is still thinking that "the last bubble" was the 1990's. Folks won't have a grip of this until they see that this isn't the UK 18-year housing cycle, but the three-generational credit cycle. Folks will have got it when they realise that "the last bubble" was the 1920's one.

The Meedja is full of them.

FoFP

Reply to
M Holmes

Good chance of it after this bust. Not only will it be 70 years or so until the next large credit buble, but as the Magic Token changes, it won't be housing next time.

FoFP

Reply to
M Holmes

If securitisation ever does make a return to capital markets, I suspect it will involve the banks holding the most at-risk tranches themselves so that the economic incentives are where they need to be.

FoFP

Reply to
M Holmes

This is why it infuriates me hearing of folks who want to "fix" the mortgage markets. By this they mean they want to return to securitisation as in the status quo ante. However, it was securitisation that was at the bottom of the whole problem. It set up the perverse incentives to lending recklessness.

The markets *are* repairing the problem. The careless banks are out of funds and so must quit lending recklessly. Fear of further losses has them demanding that borrowers have a 25% deposit. This stops reckless borrowers because they no have to prove they can save, and those who succeed are historically far less likely to default on a mortgage. Meanwhile the net effect is to bring down house prices back to where people can afford them without going into hock for their entire lives.

Thus the major three problems are being solved by the normal function of markets. The government of course can't help but think of ways to prevent this natural solution. Thus they ail out careless banks through nationalisation (Northern Crock is losing enough each month to build five major hospitals) or through using taxpayers money to buy securitised mortgages and pretend that the banks don't need to adjust their business models.

There may be a point where the government can do some good. History suggests that it should keep its powder dry until the very bottom of the credit cycle (looking like 2012 or 2013 at the moment) and then mitigate the worst personal effects, perhaps through buying up steeply discounted property to use as council housing.

Instead the government bails out the idiotic financial institutions at vast taxpayer expense, and lets the taxpayers go hang. There was a study last year into 113 credit crises and how much it cost to fix them. That cost varied between 2% of GDP and 160% of GDP. You can bet our government is heading for the higher number. Throwing cash at the problem just when it starts (and we're barely into the first innings) is a guaranteed way to throw money down the plughole.

FoFP

Reply to
M Holmes

Someone needs to tell them about King Canute.

FoFP

Reply to
M Holmes

In fact the average gain on property prices for the 400 years for which we have good numbers, is about 0.5% per annum in real terms. Shares generally gain about 2%.

Inflation has been the homeowner's friend, and the past couple of generations have lived in what has historically been The Great Inflation.

That could have been a feature of the first credit cycle to have mass fiat currrency. It may not pertain in the next credit cycle either because we return to real money, or because we have a better grip of fiat money next time around.

FoFP

Reply to
M Holmes

Gold, Oil and a few other commodities are looking like candidates for the next bubble.

Reply to
Jonathan Bryce

Havta admit, I'm beginning to wonder about the collapse of the gold price recently.

Anyway, there's a possibility of a move in investment to green energy. It'll probably take a good long while to turn into a bubble though.

FoFP

Reply to
M Holmes

If we're talking 70 years I don't see how oil can possibly be the next bubble. Either civilization is going to have collapsed or we're going to have an alternative.

My exponential fit has oil at >3000$/barrel in 10 years time. No, I can't see that really happening, but it's going to be "exciting" seeing where and why the trend breaks down.

If my predictions are any good we should be looking at $115 at end of the month, 118 for end Sept and we should really cross 140 end April next year.

Tim.

Reply to
google

"M Holmes" wrote

Wouldn't a major buyer like the govt coming into the market, push up prices substantially?

Reply to
Tim

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