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London-loser

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Everything posted by London-loser

  1. Gerlewis, You are very welcome to your point of view - even if others disagree. I'm sure that it has been well and truly noted by HPCers that land in the UK is finite (and indeed that we have strict planning laws). I'm not at all sure things have changed so fundamentally to sustain prices at 60-70% above their long-term trend.
  2. So, if I understand correctly, you are saying that UK land was a finite resource before, during and after the last house price crash... and therefore prices cannot crash today? There seems to be a lot of wishful thinking in this argument and little logical foundation.
  3. Gerlewis, Can you apply this argument to the last crash (when property halved in value in real terms), the previous crash, the one before that etc? Was it because land in the UK was not a finite resource then? Or that the UK population was falling? Or why was it that prices crumbled then but cannot now?
  4. I suspect that we may well hear a lot more stories like this in a few year's time. I'm a big boy and will take responsibility for my own decisions but I really do worry for some of the people I see buying around me. For example, a reasonably bright colleague who bought a two-bed flat with his friend (maxed out, IO mortgage - I think about three times income EACH) who is reasonably happy about the idea of stagnation for many years (he knows I see this as pretty much the bull case these days). In five years time, if HPCers are anything like right (even if prices stagnate for the whole period), he will still own a half stake in a two-bed place with no extra equity... meanwhile someone who rents well and saves/invests well?
  5. Homeowner, There is always some truth in this argument - people often want more than they can afford, some even feel they deserve it (and this does seem to be a disease our youth particularly suffers from today). However, that said, the bigger issue is that houses have just become outrageously more expensive. I don't think this is healthy. For example, six years ago an average salary might have bought an average property. Today, with the house-price-to-incomes ratio SO much higher you need to earn one-and-a-half times the average salary to afford the average property. The average person six years ago might have WANTED a better than average house (the same as today the average person might WANT a better than average house) but at least they could get an AVERAGE house then unlike today. Today an average person who WANTS a better than average house is supposed to just take a significantly worse than average property and get on with it. I believe this is unsustainable. My "old economy" view is that house prices ultimately are tied to what our incomes will allow us to pay. At present easy debt (and people's willingness to assume high levels of debt) along with some unrealistic assumptions about future interest rates, inflation, wage growth, rental growth and house price growth have driven prices to silly levels.
  6. I wouldn't disagree with the idea that owning is better than renting (generally speaking). For me renting is ONLY 25-30% cheaper than owning my property (depending on what the selling price actually is today). We'll have to agree to disagree, as ever, on where the tipping point is... only time will tell. As for the paper and rentals, I'm not sure it make MUCH advertising off rentals (I suspect big glitzy colour spreads of executive homes in Esher are more profitable than little boxes advertising a two-bedder in Golders Green).
  7. Hi TTRTR, I'd agree that there are things to question in this article - aren't there in pretty much all articles on the property market? I was just a little surprised to see this type of piece in the Bricks & Mortar supplement - a pull-out, remember, that makes its money from adverts about new £1.25m properties in Esher or whatever. Certainly I remember when I first came to this site this supplement (then edited by Anne Spackman) got a panning weekly for its unreservedly bullish view on property. I certainly know one tenant who saves/invests the money! As for the rest of your post, this depends whether you believe in 7.5% capital growth for here. Change it for -5% and things look VERY ugly very quickly. I'd agree that generally speaking property is a good long-term investment. I just don't think it is now a better bet than renting. It seems someone over at The Times is starting to agree.
  8. This is a classic BTL view of the world - one in which nobody even attempts to buy property any more. Interest-only mortgages are a symptom of the problem NOT the solution. Perhaps you might want to re-do these calculations on a repayment basis? Also, picking the top (roughly) of the last bubble and concluding we are no worse off than last time is a long way from concluding the market is healthy.
  9. I'm surprised there has been no comment on the article in today's Bricks & Mortar section of The Times. There is an article asking whether it is smarter to rent than buy in today's market: Bricks & Mortar today A sign of changing times perhaps?
  10. Hi Father Fred, Good to see you still posting occassionally. I would agree that this is the right way to look at property trends (as a whole) over the long term in the absence of some special (GENUINE) phenomenon that will change things permanently - essentially it is inflation plus the real increase in our nation's wealth (plus or minus some random fluctuation). However I fear we've already had too many of the future years' returns already (current prices are just based on debt "borrowed" against future economic growth) and stagnation is pretty much as good as it gets (obviously I expect a correction).
  11. I have a graph showing this using Nationwide and RPI data for both London and the UK as a whole. If someone wants to explain how I can post a graph I'll try to add it.
  12. Tempest, I did these same calculations using Nationwide data and RPI a while back and I can confirm that what you posted is correct - 25 years without any REAL gain (assuming you were ungeared the whole time).
  13. A troll is someone who posts purely to wind-up other posters - purely negatively with no attempt to entire a sensible debate or make a valid point. Search for "troll" and you can find definitions etc. Essentially a lot of people who don't believe (or don't want to believe) in a HPC comes over to try to get a rise out of HPCers - usually by posting how rich they are, how tenants are scum... etc. As for your second question, it is a little more difficult to answer. I would say (in as far as I know better than anyone else what is going to happen 25 years from now!) that your house will be worth more than it is today so you "gain" in nominal terms. However, prices generally will have risen a lot by then too so you will lose out on that. The arguments of most HPCers is not that you will definitely still have lost money in 25 years but more that you COULD be much richer if you wait and buy later and/or invest somewhere more profitable. The "opportunity cost" of buying at the top of the market is potentially huge and could leave you permanently poorer compared with people around you. To give an example, if you bought at the top of the last property boom (on average across the UK - Q3 1989 using Nationwide data) you would have got your nominal value back by Q1 1998) so nearly ten years. However, much of this increase was about inflation. After you adjust for inflation (RPI) the peak was actually in Q2 1989 and this level was regained in Q1 2002 (nearly 13 years). That is, a 13-year (ungeared) investment had seen no actual increase in its value. Furthermore, by taking on large debt you potentially store up more problems for the future (as circumstances change in ways you didn't expect you do not have the flexibility to adapt and are more likely to be severly hurt financially). For example, if you find your property down 40% and you MUST sell - for reasons such as no longer being able to meet the mortgage repayments etc.
  14. Could I politely suggest that these things haven't in fact been overlooked by HPCers. Your first point doesn't seem to have much of a point. You say you wanted to believe there would be a rapid reduction. I accept we may have overlooked what you personally wanted but this adds nothing to the overall picture. I think most HPCers, despite the "crash" word, actually believe the decline will take years to play out. The idea of this site is to debate whether/why there will bea "crash", although I'd agree there is a definite bias towards the "yes" answer. However, I suspect this was not really overlooked by most HPCers. And I can't help but feel that your second point has been somewhat noticed by one or two HPCers. The majority of users of this site believe this radical change is temporary rather than permanent (a "bubble"). Again, in relation to your last point, I suspect that most HPCers are aware that houses are fundamentally homes. They were homes in 1990 too... but that didn't mean they didn't see a 50% or so real terms correction in value, similarly in 1980, 1974 etc. Not wishing to be rude but I can't help feeling these issues have been "done to death" on this site.
  15. I've only just read the actual report. I love the comments from the two surveyors in my area (Finchley). Jeremy Leaf, the main RICS spokesman (my local EA) gives a long and mixed response. James Scott-Lee from down the road said (the full quote): No beating around the bush, no shrouding his views in platitudes.
  16. I'm surprised you almost fell over now rather than when I first wrote it (last week, the week before?). I did warn you it was probably beyond the reach of your ability to think for yourself (or at leat the part you choose to apply when you look at house prices). We both agree there are overpriced properties - no news there. The point is HOW many properties are now overpriced? My argument is that most are now overpriced. So we are at a position where we are apparently in the slowest housing market (in terms of sales) since 1974 (you may remember oil price spikes, the Yom Kippur War, hyper-inflation etc) and with sales to stock levels 20% below their long-term average. It seems there is little to debate. We ARE in this situation because the prices sellers will take for their property IS above the true market value of those properties (otherwise the market would have "cleared" and we would not have such statistics to wonder about). You (and other bulls) comfort yourself by looking at the results of property that sells and ignoring the bigger fact that property is not selling on a large scale. Enjoy yourselves. One property at the bottom of a chain, that would have sold for £99k last year, sells for £100k (bought by an idiot "investor") and this kicks off six/seven deals in a chain... all of which flow through into the index as rises... but another three do NOT sell for the £100k the sellers want for identical properties month after month after month (not to mention the three waiting at the next link in the chain, and the next, and the next). Does that mean: a) the true value of these first rung properties is £100k the true value is below £100k but one "Greater Fool" bought and three other sellers would rather kid themselves than sell their properties. I think we both know the answer. As for my mission, you're fogetting that my mission is to buy a home not an investment... it is a little different. I've done the looking... and the very obvious conclusion was to rent from an "investor" rather than buy. It hasn't changed enough yet for me to buy. You might be right that I could buy a property I don't want for less but that doesn't make a lot sense to me (a bit like buying a relatively cheap tech stock that I didn't actually like in early 2000 because it had a lower valuation than other tech stocks). As an aside, I just came back from lunch with a leading fund manager. He's old-fashioned and he was explaining to me how smart investors buy good dividend streams TODAY (4-5% yields etc compared with the stockmarket's yield of 3%, often delivered by unexciting businesses that most investors find boring or not flavour of the month) rather than PROMISES of good dividend streams in the future. Does this sound in anyway similar to the discussion on this thread eariler today? I believe you said people should buy houses based on what they THINK rental yields will be in the future (PROMISES) and if they are a few % out... who gives a fug? I ran this past him... he did fall over laughing. But I'm sure you'll simply explain to me that he is an idiot.
  17. Phew, A lot to argue about and not much time (I am actually rather busy today). TTRTR, Surely this is entirely my point - that fugwit "investors" have made decisions based on THEIR best available information (given limited understanding of economics/finance and limited interest in really thinking it through) and they have got it wrong, driving prices to unsustainable levels that deliver them poor/negative returns... but, hey, big F***ing deal!!!! What the fug do I care whether my landlord lost money last year? London Landlady, But where are these potential FTBs (people like me) now? If they are already renting (I think this is true for the vast majority) they are NOT adding to the rental population. Do you mean people who currently live at home? If so, why will they decide to rent now and will do so in sufficient numbers to compensate for the people leaving the other end of the sausage machine (sorry, I mean those passing on, emigrating etc)? Or are you also relying on massive immigrnat demand? If so, why won't this immigrant labour drive down the average salary and the average amount people can afford to pay in rent? As for the buying and doing up etc this seems eminently sensible and potentially very profitable but it is a very different argument (essentially separate to being a landlord). TTRTR again, My argument has ALWAYS, from the moment I arrived in July 2004, been that prices WILL fall (I've said 20% in nominal as a central view). I've explained my argument over and over again. It is very simple: fugwit investors have driven prices up to unsustainable levels where our national income can only allow them poor rental returns and little prospect of capital growth. FTBs are priced out of the market (based on their incomes, derived from our national wealth), this only allows BTLs to sustain the bottom end of the ladder but the prospects of capital gains are largely gone (most bulls are stagnation theorists these days... or mere fantasists) and the rental yields are poor (with little prospect of notable rises in our national income, little real wage growth and therefore little prospect for notable rent rises). As these fugwit investors start to realise it is no longer free money and actually is a poor investment the support for the bottom end of the ladder is removed (are we there already?) and vendors will have to start accepting reality. I'd say we at essentially at this point... except nobody really wants to accept it, so vendors don't sell as they await a better price and landlords keep telling themselves everything is fine (using numbnut arguments such as how people currently renting are not buying so they demand rentals so prices will go up etc). As for prices rising etc, I think we've discussed this. I think the indices are now mis-informing (since SO much property is not selling). I've argued the property market has failed to function and this has allowed people like you to CLAIM house prices have not fallen. I contend that they have... they just haven't sold yet and therefore only show up in asking price indices etc, which we both know are clearly down. I realise {edited typo} that is quite a subtle argument and quite difficult to grasp (especially for those who don't want to) but I genuinely believe that is the case today. A lot of people are kidding themselves that UK property prices have not fallen. YOU are just one of them.
  18. TTRTR, My point is indeed about the supply/demand position. I'm not sure I understand how your graph demonstrates that house prices are fairly valued and will rise. As ever, you seem to only look at one side of the equation (how many potential investors are there) and ignore the other side (how many potential tenants are there). As I keep trying to explain to you (and YOU never get it) BTL-ing ONLY works if you have a tenant AND they can pay the rent you need. This is why my old fashioned view remains that rents (and house prices... except for the occasional period of "irrational exuberance") are tied to incomes and at the aggregate level to the nation's wealth. The pyramid you show MIGHT become important in 20 or more years time (as you suggest). The real point of course is how the supply/demand position changes now, next year etc. I'm afraid I don't see the HUGE changes in population you do (and renters becoming buyers or homeowners becoming renters doesn't change the overall value of property... unless there is a numbnut landlord who is willing to overpay for the property and rent it for a poor return). As for the immigration argument, I've agreed before it will have an impact. But not nearly as dramatic as some bulls suggest. And I also think it will have a double-effect (on average incomes as well as demand for property) but I know you prefer to only see the side that is positive for house prices.
  19. London landlady, I'm still awaiting a single bull who can explain the logic of the above argument. Can you please clarify it for me? I am renting in London because I think property prices are too high and rental yields are too low. How does my continued view that the above is true support the purchase of new BTLs? I can see that my paying rent at less than 5% of the current "value" of the property allows my landlord a tiny profit (assuming prices stay static) but that is only because he bought years ago. If he bought today then he gets a less than 5% yield, why would that make sense? If you buy a property from someone who chooses to STR then the net balance of supply/demand for property has not changed at all... you just rent it for a minimal return (unless you are able to buck the trned and find high-yielding properties set for significant capital growth). TTRTR, I didn't mis-read it, I understand the idea that rents are rising more slowly than last year. My point is that if a landlord buy property on the basis of its discounted future cashflows (perhaps a strange concept for BTLs?)... and those future cashflows are apparently rising less rapidly than the landlord expected then doesn't that make the investment worth less? What I mean is that if you make an assumption of 7% annual capital growth in house prices... and it doesn't materialise (horror, they even fall) you find you bought a duff investment. Similarly, if you buy anticipating 5% annual rental growth... and it doesn't materialise... I'm sure you understand my point. As for the oil price, Brent crude is a mere $55 and WTI a mere $58. Yup, an absolute bargain... and unlikely to have any secondary effects. Personally, you'll remember that I've agreed with you that lower IRs are likely... although I think they will be joined by lower house prices.
  20. Alright Jack, It might be just a TOUCH early to call a peak in CPI inflation based on one piece of information that makes your day (in the same way as I'm sure you didn't worry too much when last month's data came in high). And TTRTR, you failed to comment at all on the above. Did I read it correctly? Housing costs were the driving force behind falling RPI and rents are now helping to drive DOWN the CPI? Yup, all is well in the UK housing market... move along, there's nothing to see here.
  21. The average income is something like £26k per year. It is obviously true that lots of people earn more than this... but for every couple earning £80k there are two other couples earning £40k (and this continues into the extremes). There are indeed lots of rich people but there are even more very poor people. And it is true that people who already own houses can exchange bubble equity for bubble equity... but of course that doesn't mean prices are in any way sensible. The market is healthy when the bottom rung is healthy... and it ain't.
  22. Today's issue of The Times has a story about how "financial markets expect the next move in interest rates to be upwards". It quotes the consensus of City economists as downwards (as Economic Sensation enthused about recently) but says the futures market, far from seeing rate cuts, has now priced in a 0.25% rise for next year. Could it be that August's 5-4 vote in favour of a cut will be seen as a hiccup this time next year? The MPC might have been doing some impressive micro-managing of interest rates or perhaps it made a mistake. Of course the future's market could well be wrong and we may see another cut (if the economy deteriorates further), although I'm struggling to see why that is good news for the UK housing market (if my view that house prices are "super-cyclical" is more right than your apparent view that the housing market is acyclical). Either way, I'd refer you to my suggestion late last year that you give on trying to predict every twist and turn in the interest rate cycle and focus on the bigger issues (the high level of house prices, the high consumer debt levels, likely tax increases/public spending cuts etc). They'll tell you UK house prices are priced for a perfection that doesn't exist.
  23. Hi TTRTR, I thought it only polite not to ignore this thread. I posted elsewhere that the bulls indeed appear to have "won" for 2005 - certainly in terms of seeing nominal falls officially reflected in the main indices. That is as close as you'll get to an apology from me at present. That said, I've posted before that I think these indices are noe giving a "bum steer" - as they don't reflect the full market situation (for example, we have sales volumes estimated at a 30-year low now). If I remember correctly, TTRTR, you suggested the market would dry up rather than prices fall. I think this is where we are at now. However, I think it is a Pyrrhic victory - the fundamental imbalances have not gone away, the economy is not looking better and prices have not fallen (officially anyway) because people have decided they prefer to leave the house in the estate agent's window and kid themselves about what the property is worth rather than actually sell. As far as I can see prices have not fallen because "the property market" has ceased to function. I still feel there is only one real solution to this problem.
  24. Hmm, According to that report rental yields in London at the end of Q1 1996 were about 10%. TTRTR seems to think this significantly understates what "true and fair" rental yields actually were back then - should they be 12%, 15% or what? But the Bank of England base rate was just 6%. So back then the yield premium of rents over the base rate was 4% if you take their numbers, maybe 6%, 8% or more if you prefer TTRTR's vision (once you strip out the unfair effects of sitting tenants etc). Today the base rate is 4.5% and I believe the average yield in London is below 6% (TTRTR tells us 6.5% is a very good yield). So the "fair" rental premium over the base rate then was maybe 6% and today it is less than 1.5%. I realise things are different now but has the yield premium required on London property REALLY collapsed to that extent? Or could we just have bubble prices at present?
  25. Indeed. It seems to me a fairly clear sign that the market is not healthy. So far, it seems sellers have decided not to sell their properties rather than sell them for "insulting" prices. At some point (I WISH I could say when) something will give. Either: a) Buyers will offer more... perhaps on the back of higher incomes? Perhaps... after a LOOOOOONG period of stagnation. I find this argument pretty weak. Sellers realise to actually sell (rather than merely leave their property in the estate agent's window) they need to match their price to what buyers can and will pay. My bet. c) The property market dries up and what is currently a 30-year low in terms of volumes becomes the norm. The "housing ladder" as we know it is no more. Possible but pretty unlikely I'd say. So far it seems the bulls can claim a victory in that the main indices do not show house price falls. However, this seems like something of a Pyrrhic victory given the fundamental imbalances that made me decide not to buy a property remain in place and the pressure is increasing against a weakening economic backdrop.
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