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Re: Is your Home an asset or a liability?

> If you owned the smaller house, you could use the "extra deposit" to pay > down

> > your mortgage, effectively getting a return at the mortgage rate. > > If you use the money as deposit instead, the extra equity in the house would > also "effectively [give] a return at the mortgage rate" - because we are > assuming house price inflation roughly the same as the mortgage rate. > > Either way (whether you have a 60K mortgage on a 100K house, or a 160K > mortgage on a 200K house - being 40K equity overall in both scenarios) the > money you have "invested" in the house is getting a return of the mortgage > rate.

Yes, that was my point. I thought you were trying to imply you could benefit more by making a "mortgage rate" return on a higher deposit from the more expensive house. You are making the same return on your equity however expensive your house.

> I agreed that it was a close call, too close to use to make any reliable > > prediction about the future. But, that doesn't alter the fact that based > on the > > last 30 years, mortgage interest rates are (admittedly slightly) more > likely to > > be higher than house price inflation. > > So ... if I toss a coin 31 times and get 15 heads and 16 tails, then would > you think that "based on the last 31 tosses, the coin is (admittedly > slightly) more likely to be tails than heads" ? !!

Yes. The clue is "based on the last 31 tosses", rather than based on any other sort of reasoning.

However, with a coin, assuming it is "unbiased", like with lottery numbers, there are far better and more reliable ways to work out the odds than to look to past performance. I don't know of an equally reliable way to work out the odds of house price inflation being greater than or less than mortgage rates. Unlike a coin, there is no intrinsic reason why the odds should be 50:50.

Reply to
Andy Pandy
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As long as houses remain in short supply the price tends to be limited by salaries, and salaries are likely to grow at about the same rate as nominal GDP, i.e. maybe 5% at the moment. The general assumption is that to keep inflation in control you need real base rates of around 3% - index-linked gilts yield 2% but gilt yields seem to be depressed by excess demand. If you assume that mortgage rates are typically 1% above base rate that would suggest that you'd need real GDP growth above about 4% for house price growth to exceed mortgage rates on a long-term basis, which seems fairly unlikely. On top of that house prices currently appear at least to be on the high side, and the potential exists for house prices to fall back towards the build cost if the supply/demand balance changes.

Reply to
Stephen Burke

Agreed.

Indeed.

Roughly, yes.

If that's all we've got to go on, then we can statistically infer that the true probability will be the result observed (ie slightly less than 50% HPI > MI) +/- some amount. As you say, this could make it above 50% or below it.

However, the range of possible probabilities, although it extends either side of

50%, will extend slightly further below 50% than above. Therefore the probability of the true probability being below 50% is slightly greater than the probability of the true probability being above 50%.

Therefore, *based on the last 30 years*, I still say it is more likely that HPI will be less than MI.

Reply to
Andy Pandy

"GoldTrader" wrote

Darn that pension fund - won't put any money into our pockets for a few years yet ...

Reply to
Tim

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