Saturday, Oct 18, 2008
Catching a falling knife
Telegraph: Property market: When the going gets tough…
Shreena, 21, graduated last year. She bought her one-bedroom flat in Battersea, south London for £165,000, after negotiating down the asking price of £180,000. "All my friends feel the same - renting is throwing money away. I know that house prices in London will go up. I'm hoping to stay here for two to five years and then afford somewhere better."
Posted by little professor @ 09:22 AM (2290 views) Add Comment
44 Comments
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1. japanese uncle said...
Sorry but in five years time, this flat may be priced around 40K.
2. Nick Deguillaume said...
Popularist stuff full of comments like "renting is throwing money away" and "once you're out of the property market it's difficult toget back in"
3. quiet guy said...
"I had spoken to a building society about how much I could borrow - my mother came in with me so that I could borrow more - and then I contacted every estate agent I could find. I told them what my budget was but they kept trying to get me to stretch it."
Reptiles.
"I know that house prices in London will go up."
This is pretty much an admission that the young lady is borrowing more than she can afford to make money on appreciation i.e. gambling. It's her choice but please no whinging if it goes wrong!
4. renting2 said...
Rent something you can walk away from quickly without losing capital.
Or
Invest capital in a depreciating asset you can't get rid of AND pay through the nose for it while you're doing it.
Hmmmm ....... hard choice.
5. Luckjim said...
'renting is throwing money away'...
wheras the interest paid on a £165000 debt is erm...
6. handle_it said...
Hard to believe people even now consider renting to be throwing money way. Hmmm okay love you and all your friends know best. You might just want to think about adding up how much interest you'll pay quite apart from buying an asset that's falling 2% per month. Silly little girl.
7. Wyldman100 said...
There is no news in this article, it is so dull, what is the point? The car market is tough these days, imagine how dull a story about four people buying a second hand car would be.
8. Brightonrentfodder said...
thank you Japanese uncle, as always a bit of common sense here, ofcourse small flats aren't worth more than this, whatever made people think they were ? I'm glad I never listened to other people, the only ray of hope and sanity over the years has really only come from this website and one or two economists with tough outer shells.
9. Will said...
Government should issue 'price warnings' with every house purchase, as they do with endowments.
10. peter_2008 said...
This is a great laugh. Every single word sounds like a fantasy.
"I think prices are creeping up in America." You mean the America on Mars?
"My mother came in with me so that I could borrow more" What a brat! And in a few years time, your parents will get their house repossessed, too.
"I did research everything before buying." No, no and no, you didn't.
11. paul said...
"I think everyone is suffering but we would be surprised to find out our house had taken a massive hit in value"
Ahh, yes. Burying your head in the sand regarding the real value of your property is always a good defence against falling value.
12. matt_the_hat said...
The problem is gents she has made the right decision - bad investment decisions are not punished when it comes to house price speculation in this country, she will 'make' money in nominal terms on her 'investment'
13. mark wadsworth said...
Renting 2, if you put it like that it is a very difficult choice. But you missed off the big advantages of buying property now ... which ... ah ... I can't think of any (apart from being able to smoke indoors, that does really p me off, having to go outside because the letting agent says so).
Matt, do you think the gummint will go for high inflation?
14. paul said...
"bad investment decisions are not punished when it comes to house price speculation in this country, she will 'make' money in nominal terms on her 'investment'."
Only if she is content to lose an awful money if she has to move in the next 5 years. She is burying her head in the sand about the actual value of her property now - what about when prices are at -30%?
Remember a 30% rise is reversed by only a 23% fall, so the current drop of 13% reverses a 17% rise.
15. Ketha said...
Ah man, you lot... postive hype creates 'bubbles' (overpricing)... negative hype creates downward bubbles (underpricing)... houses are worth something because people need to live in them... when caravans are 30-40k there's a limit to how much houses will fall... they may dip, they will return... even if the government coverts them all to council houses... the next 3 years will be tough but the negative hype in this place is just as pointless and the over-confidence of the market.
16. drewster said...
MarkW,
I think the governments of the indebted western nations have no choice but to inflate away the debt. Previously when the debt was all held privately it didn't matter so much, but now that it has shifted onto the government's balance sheet it has focused their attention on paying it off. They will be printing pounds (and dollars and euros) to erode the debt.
However the big question is whether they can print fast enough to offset all the money that is being lost through credit unwinding (c.f. fractional reserve banking). If they print too fast, the bond markets will realise what is happening and will abandon treasury bonds. Yields on UK treasury bonds, currently sub-4%, would shoot through the roof as investors demanded higher interest rates to compensate for inflation. More taxpayers' money spent on higher interest payments means either less taxpayers' money spent on the public (schools, hospitals, police, nuclear submarines, etc), or higher taxes.
Random thought: is there any way to speculate on taxes rising (or falling)?
17. Eagle said...
http://flisolo.com/users/shreenas
Long term job?
18. stillthinking said...
I am sure that she does not in her mind make the distinction in her mortgage payments of the interest and capital repayment. Very few do. If she really thought about how little capital she pays off per month she would probably understand that actually she continues to rent, just that she is renting money.
19. growler said...
Stillthinking
Absolutely. I find it idiotic to hear the argument "renting is dead money". I look at opportunity cost. If I wanted to live in a 3 bed terraced house over the time I think I'll live in it (say 7 years average) then add up the rent and place that against the cost of owning and repairing and borrowing. In the recent past, there case was for buying as you'd have more cash at the end of the time window. But now, you've got to be high on bull or have no idea on using a calculator. With CV falling and recession not yet kicked in, you're crazy to buy. If we do have deflation, then this will contribute to the rent argument since houses won't have an increase effect due to inflation. So if you save (don't buy) then not only will the HPC help you, deflation will help this more since money in the bank can never be at a negative interest rate.
20. paul said...
Ketha,
There has been an awful lot of bullish hype around the property market over the last eight years (in fact there still is, although it is starting to sound increasingly desperate). There needs to be an awful lot more negative to reverse that you know - I don't think this site alone is up to the job in fact.
21. handle_it said...
@ KETHA 10:45AM You've got it the wrong way round ! When houses are 40k then (or relative to earnings of) caravan prices will be also relative. But the issue is land value in any case. This isn't negative hype it's putting out warnings to would be buyers..
22. jackas said...
Sreena deserves to lose money because she is a fool.
23. Mark said...
Since property in the UK became both a 'must have' and a 'mark of achievement' it is no surprise a bubble exacerbated by cheap money grew.
This is all about affordability of your mortgage. Typically the market regains its original value 7 yrs post crash. Could be 10 or so this time round.
You might break even by the time you are 33 yrs old assuming you keep your job.
If not, you are young and have time to recover.
24. Mark said...
The market typically recovers to original values approx 7 yrs post crash. This time it could be 10yrs or more.
Not sure who you've been listening to. At best you will break even by Age 31-33 assuming you keep your job..... (that's expensive rent & high risk for no chance of gain).
The herd is always slow to accept the drum beat is, or even has, changed. Typically they sink into denial. Choose new friends and different people to listen to.
Chances are you will get wiped out. However you are young enough to recover and that may need to be your focus in the future.
25. nubbers said...
Its possibly a bit unfair to call these youngsters in their 20's fools. They have only known rising house prices and been reared on Property Porn by older generations who should be more responsible.
26. peter_2008 said...
@ KETHA 10:45AM In the place I live, pensioners do try to sell 2 bed caravans (or Park Home) at £100,000, even though a new two bed flat is about the same price in my area. The result, they can't sell; and nor do the new 2bed flats. Pensioners price caravans at unrealistic price not because it is worth it, because those pensioners have huge debt in their retirement.The price is the amount of money they need to pay off their debt. The price is not even remotely related to the market conditon, in the same way when overpriced flats can't sell at auction.
27. nooneo said...
I think Japanese Uncle said it all in the first post.
"Sorry but in five years time, this flat may be priced around 40K." - People really can not get their heads around what has happened in the last year. The amount you paid for a property, particularly those that bought in the last year or two, is on absolutely no significance anymore.
The international money markets are broken. We have a debt mountain in this country that is, per capita, the largest in the developed world. We have had the largest asset bubble bursting in modern times. Our own sub-prime market hasn't even started defaulting in a big way yet, they will because just as "rent is throwing away money" It is even more extreme when you are servicing a mortgage for say £700 or so a month and you are seeing your properties value go down by that a month. You may as well pay rent. It will be cheaper. Paying amortgage when you are actually losing inherent value (or so you though) is actually much worse than paying rent. It's a lose - lose situation.
Poor old Shreena and her mother who helped her, will wait at least 10 years to get their money back. Oh dear !
Nubbers: You can dress it up any way you want, but the girls a fool !
28. mytimeisnigh said...
@KETHA 10:45AM, caravans worth £40'000 are the type of luxury items that people might buy after they have bought essential items such as housing, car, furniture, pension, education for children etc etc. People who don't own or rent houses and who live in caravans are gypsies and beacuse they own no land they're continually moved on from place to place. In the coming recession, there will be less money around for luxury items and I should imagine that caravans wil be sold at sale prices. Also, caravans can currently cost £40'000, but you can also buy second hand ones for £200, like houses the spectrum of cost is vast, the comparison you drew was between, a flat which is at the bottom end of the property price range and a luxury caravan which is a the top end of the price range for cavavans, this is not the basis for a sound argument.
29. Landedgentry said...
But I want it now!
http://uk.youtube.com/watch?v=dU7nG3KvZDA&feature=related
30. growler said...
I wonder if we will ever get an article called "rent or buy? - 10 good reasons why it's better to wait". The day I see this is the day I'll think the property pages (or should that be property purchase pages) are doing their readers a service. Describing these gullible peoples plans as anything other than terribly misguided is selling them down the river. Shame on you Telegraph.
31. renting2 said...
growler, the day we see "an article called "rent or buy? - 10 good reasons why it's better to wait"." is the day we will probably be looking to buy a house!
32. plato said...
mytimeisnigh.............
Excellent and lucid comment and the very essence of the silly over-valuation that has spread through the minds of the shallow thinkers in society. In many cases not realising ( being ignorant) the harm it does to the society they have to live in.
33. nooneo said...
Ketha @ 15 said...
"blah, blah, blah....no house price crash going on here, blah, blah ,blah"
Nooneo says
"What kinda klnob are you....I suppose it'll all over by christmas"
Ketha, you optimise the very reason we are in theis mess. You are both stupid and ignorant.
34. Yoman228 said...
Please think positive, as least she helped the seller not to repossesse.
I just hope all people in UK have the same thinking as she is, so we not need the tax money to bail out the bank.
35. night said...
nooneo @ 30 (10:36)
The word you were aiming for was epitomise. You missed, and hit the ironic self-defeating comment instead.
Alas, it now appears as if we are the stupid ones.
36. p. doff said...
Night
Nooneo never has been that hot on spelling. Whether it's a probem of dyslexia, poor eyesight or just a sticky keyboard, nobody really knows. We tolerate and forgive him because he is aware of, and admits, his shortcomings, but I do agree with you that it is unwise to call others stupid and ignorant under the circumstances.
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