London-loser
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Posts posted by London-loser
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I agree that it is essentially not true that we have a shortage of accomodation.
If this were true rental rates would have been flying in the same way house prices have (and everyone would be renting out their back bedroom by now).
The fact that rental yields have been steadily falling (and are now at pitifully low levels in many areas) suggests we have more than enough roofs (rooves?) to go over people's heads.
The issue is that Englishmen WANT to own their own castle... and that banks etc are happy to allow them higher income multiples etc to chase their dream.
So we move out of rented two-bed flats into purchased two-bed flats (for example) - the demand for purchases has gone up, for rents it has gone down but overall we are NOT lacking places to stay.
There are marginal changes (for example as a result of net immigration) but these are not nearly enough to explain why house prices have ran away as they have (especially since rents have not).
The longer the BTL phenomenon continues the less pricing power the BTLs will have in the rental market.
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I'll bet you can't last a day without insulting someone (by the way, calling people "losers, scroungers" etc does count as insulting them).
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The problem is that a 10-20% 'mild correction' would leave property (in general) overvalued still.
This will not solve the problem (that people in general cannot afford to buy homes) and will not return the property market to a healthy position from which to move forward.
Instead of the average house costing more than five times earnings they would cost more than four times earnings (roughly, after a 20% fall), which is still well ahead of the long-term trend.
Assuming we are not in a new paradigm, in which people just accept that they will all have to pay a greater proprotion of their salary over the next 20/25 years to own the same house (rather than rent it), then houses would STILL be too expensive.
It might be nice for homeowners, BTLs etc to hope for houses to remain overpriced, or in a new paradigm... but it simply isn't very likely.
The reality is they should prepare for housing to overshoot on the downside and become 'too cheap', this suggests something like an 'astronomical' fall is coming (I don't know when or how long it will take but I'm pretty certain reality WILL return to the market).
Realistically I think that astronomical fall will come spread across four/five years (possibly starting next year) with, as you suggest, a period of uncertainty afterwards and a return to current levels (in real terms) in perhaps ten years or more.
Shame... but then the bubble didn't have to get blown up. Lenders could have acted more responsibly, so could buyers, estate agents, mortgage brokers etc but presumably they all stood to gain (at least in the short term) from blowing up a bubble. I'm afraid this is human nature and it seems more and more relevant to today's 'get rich quick, buy today and pay tomorrow' society.
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I think he means £700 on his TWO flats (remember he bought one for £70k then it became two when people questioned his numbers).
Even so, he is somehow managing to get people to pay £350 per month (£4,200 per year) on a flat that is only worth £35k. Even someone with a McJob can afford to buy rather than rent that flat.
A nice trick. Presumably these are mentally handicapped people, in-bred 12 finger types, permanent dolites etc.
Sorry Sledgehead, you are right I should not leave you two to slug it out and not read the postings but for some reason I keep hoping the thread will be redeemed (it has carried some useful information).
I'm afraid he drags me back into his weird world far too often.
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Sledgehead,
Give it up.
We've all had long arguments with BBB... leave it, he's not worth it.
He absolutely refuses to acknowledge that capital losses will be relevant to his business... he argues the best way to decide whether his properties are good value or not is by comparing the rent with the size of the mortgage... for him only the price he bought at is relevant... etc, etc.
You cannot argue with him. You can argue AT him and he will return fire... FOREVER... with no shame.
It doesn't matter how many times people point out how utterly ridiculous his point of view is, he will KEEP coming back.
If not for yourself, give the rest of us a break.
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TTRTR,
I think you are right that giving someone a loan to buy property is a great investment for the bank (since they can recall the loan/force a repossession etc). I'm not sure many people would dispute that.
If you are suggesting that the banks are investors and homebuyers are speculators I think I'd agree with that. Forgive me if I misunderstood initially.
I'm not sure I can understand your view that 20% would still be a 'fair' correction while 30% would be 'astronomical' though. That means there is only a relatively small margin for error in your calculations (especially given markets 'overshoot' in both directions, typically by 10% or so in the property market on the downside).
If you look at multiples of incomes for example we are clearly at least 30% above trend. If this is vaguely right and there is an 'overshoot' then you are quickly into that astronomical area.
"And you only get a capital loss if you sell at a loss." I'm lost by this.
It is of course a truism - a paper loss is by definition only a loss on paper, until you choose/have to sell.
But, by that definition, I could invest £10k say into a FTSE All Share index tracker and as long as I never sell it I have never made a loss (even if Britain goes communist and my £10k becomes 'worth' £0). Does this mean I've never taken any risk?
Surely on that basis property is much more risky than shares - since someone else (the bank) can, in certain circumstances, FORCE you to sell whereas you can pretty much refuse to cash in your stockmarket losses under most scenarios (if your £10k is worth £0 the bank will probably not bother to FORCE you to crystallise this £10k loss or if we go communist you probably won't be FORCED to sell - you can still keep your share certificates and pretend they are still worth £10k).
As for shares v property as long-term investments, it really depends WHEN you start (and how geared you were when you started).
And it seems people are not more cautious in relation to property than shares (perhaps illogically). People WILL borrow 10-20 times to back property but they generally will not do this on shares (and obviously the banks will not let them). This is because they tend to believe "you can't lose on property". Unfortunately it is not true.
As you say property investment usually involves people risking MORE than they can afford to lose whereas share investments typically involve them investing money they can lose. This is absolutely why timing is everything in the property market (the long-term buy and hold story is only valid if you bought at the right time - as it seems you probably did).
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Hi TTRTR,
It is good to see you posting again, and on the big boy's forum (the other is just becoming painful to read these days).
I hope we have both already agreed that shares are generally more speculative than property. But I THINK we have also agreed that property (especially a BTL) is NOT a good investment at the moment.
If a good investment offers "safety of principal and assured regularity of income" then it seems pretty clear to me that property (especially BTL) is currently a BAD investment.
Whether you agree or not that a 30%+ real terms correction is needed you must acknowledge that "safety of principle" just is not there - people COULD suffer significantly losses in a relatively short period of time (especially if they are five/ten times geared etc).
It is entirely possible that someone who is currently five times geared could see their principle completely wiped out over the next five years.
I'm sure you point is that property is GENERALLY a great investment over the LONG TERM (I'd agree entirely).
But if you end up just paying yourself income out of capital (you still get your income stream but take capital losses) then this surely fails the above definition of an investment and moves into the realm of speculation doesn't it?
But most of all I really can't agree with this statement: "Only an astronomical crash will cause years of pain".
I know we have been here before but:
1) We are in a low inflation environment (say 2%) with the long-term real return on property at maybe 2.5% (so we should HOPE for about 4.5% nominal returns);
2) House prices have significantly overshot their 'trend' (or 'fair value' based on boring things like economic growth and therefore income growth levels etc);
3) Most people are significantly geared into house price movements (and certainly this is true of the majority of marginal buyers and sellers).
A 30% fall, which I would not consider 'astronomical' (indeed it is entirely likely, at least in my world) would in fact cause MANY YEARS of pain to homeowners - especially those who are five times+ geared.
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I really think people should not under-estimate the effect price falls will have on 'pent-up demand' from FTBs.
A lot of this demand is driven by people seeing house prices running out of their reach and desperately wanting to jump on board.
In general people WANT to buy... but once they can see they are buying into the very real potential for negative equity (and renting wil probably remain relatively cheap) I think a lot of this demand will evaporate.
As for BTLs looking to pile in, there will be something to this - some professional BTLs, who have not overstretched themselves will take advantage... once they see good yields again (NOT before). They are even less likely than FTBs to jump in early (they have a PROFESSIONAL, dispassionate approach).
But I think the fashion for BTLs will also evaporate - once it stops being a one-way street (it already has in a lot of places but many BTLs refuse to see it). As for the REITs/pension funds etc, I think this is largely noise - by the time they become law few private investors will be that interested (can you imagine people being offered the opportunity to bet their pension on tech stocks in mid-2000?).
People who have 75 properties and have been 66% geared into the falls (i.e. with 30 of their properties essentially owned by the bank at present and with this number set to rise rapidly as prices fall) will be in no position to buy anything. Their banks will almost certainly decide they are not a good investment.
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I'm afraid this is what BBB does.
Like I said, I hoped we'd left him on the old forum where I thought he'd have more fun.
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Van,
You are of course right, we should all just ignore his nonsense.
I can't believe he sucked me into his fantasy world again.
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Or, BBB, perhaps this is another of those situations where you prefer to "anchor" on the price you paid and the rent you receive based on the size of your mortgage - NOT on the value of the house?
Perhaps the house is worth significantly more than £70k and you are telling us how clever we WOULD have been had we bought in the past... rather than telling us anything useful about today's market.
Shi.te, I'm listening to your nonsense again. I thought we'd left you @rsing around over on the other forum.
Still, at least I'm being well paid for disagreeing with you.
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It is true.
I remember BBB was horrified to hear that I pay £10k per year to rent a £215k flat in London... but somehow he has managed to find someone who is willing to pay £8.4k to rent a £70k house up north.
I just checked Charcol's mortgage calculator: a 20yr 100% repayment mortgage on £70k at 6.5% interest works out at £6,263 per year.
Typically people pay £8.4k rent either because:
a) they cannot afford to buy and therefore have no real option
or
they see the house as massively overvalued and set for a big fall (possibly because interest rates are set to fly or the house has subsidence etc).It seems fairly clear that BBB is in an entirely unique position in that he can find cheap flats/houses that command fantastic rents but do not simply get bought by the renters.
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Has anyone seen Paragon's share price recently?
It is down by more than 20% over the last six months (with UK mid-cap stocks down an average 4%).
Do Paragon shareholders know the same as the bears on this site?
Perhaps lending to BTLs is not going to be nearly as attractive going forward as it has been for the last couple of years?
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Wiseman,
You are making quite a few assumptions here that I'm not sure are true.
1) Rents will go up at least in line with inflation - with more BTLs, each more reliant on rents (rather than capital gains) the pressure will be on.
I recently read a report from a firm of estate agents saying rents (on average) have essentially not gone up in London for three years. This has certainly been true in my case.
In many areas I think landlords have no pricing power and I suspect they might find that rents are not moving in the way they had hoped.
Incidentally, my flat is 'worth' £210k but my rent is about £10k - BELOW the interest repayments on an average mortgage.
2) Inflation will be 3% for five years. The MPC's target is 2% and Mervyn King has to write an open letter to Gordon Brown to explain how he allowed inflation to hit 3% and what he is going to do to put it right.
IF inflation is 3% consistently for five years interest rates WILL be on the rise and quite notably (with knock-on effects for the housing market). If inflation is less than 3% then the 'stagnation' will have to be longer or the 'real' correction more modest.
3) House prices will STILL rise in nominal terms. If they do not then homeowners have no extra equity in the house and the real value (purchasing power) of the equity they do have has fallen (they ARE poorer, although they might want to pretend they are not because the equity NUMBER is the same).
4) Your example only corrects a small real-terms misalignment over a five year period. If houses are actually more over-valued than this (as the ratio to incomes/house price growth v income growth etc suggests) then, even with your optimistic view of inflation, there will be nominal losses (and your argument becomes academic).
And, of course, Bubble Trouble has already dealt the killer blow - that the renter can afford a better place (for the same cost) in the future, as the real cost of houses has fallen (with incomes rising) while the homeowner loses out (in real terms) for all their efforts.
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There is no doubt in my mind (although I'm not a lawyer) that what she said was defamatory...
it's like insider dealing (surely you need INSIDER information for this, rather than your own interpretation on publicly available numbers);
... it's like putting smallpox in the water (what the fug!).
I think you guys would have a strong case, although that is not to say it is worth bothering with.
You might want to go back to the programme makers and ask for a 'right to reply' since she has clearly defamed you/this site - maybe even set up that studio debate?
Alternatively you can just take the 'moral high ground' and know that you argued logically rather than emotionally.
She can bluster all she likes, it won't change the end result... she even said something along the lines of "we've all hoped for years that there would be a slowdown".
That's the point, Kirsty, had there been a slowdown three or four years ago (rather than a massive rise) then none of us would be bothering to argue about this.
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Wiseman,
You seem not to have noticed that we are in a low inflation environment (just 1.6% if you believe the 'official' annual figure).
In such a situation anything over than very minor real losses are in fact nominal losses - a 5% real fall = a nominal fall of 3.4% or so. A 30% real correction over five years will probably equate to a nominal fall of 20% or so.
Your argument was relevant in the early/mid 1970s (but the of course nominal interest rates were sky high).
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I just watched this.
You guys did well, I don't think you have anything to be ashamed of at all.
As for Kirsty, she was phenomenally dull. She spoke a lot and said nothing.
She reminds me of the bulls on this site - there won't be a crash because I don't want there to be one... banging on about low interest rates etc presumably "experts" such as her should know better (real interest rates are NOT low at all, as she'd know if she bothered to look at this site).
A transcript on the site would be great, I'm sure we'll have a lot of fun pulling the air out of her argument (I'm not sure there will be a lot left though).
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Hi Titled twit,
It is true I do have a vested interest (we pretty much all do one way or another).
The subtle difference is, of course, is that I'm not drawing up 'new' ways to value property.
Old fashioned things like income multiples, income growth rates and long-term real returns will still do the job for me (of course they leave me a long way short of current prices, unfortunately).
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I particularly like the closing sentence (in stage 9):
"Only those who entered stage 6 with little or no debt survive to buy the dramatically discounted properties."
That's me, that is.
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So, either:
1) Rents are set to rise rapidly;
or
2) Landlords will just bed down for poor returns over the years to come;
or
3) House prices will fall back into line.
I know where my bet is.
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Randall,
That is the article I mean.
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Did anyone else read Anne Spackman's column in The Times' 'Bricks & Mortar' today?
It is the funniest thing I've read for quite some time.
She talks about a "new" way to value house prices, as brought to us (from the US) by FPDSavill.
Why am I always suspicious of "new" ways to value old things, especially when they are introduced by people with a vested interest?
As she put it: 'The researchers have come up with a new, complex measure of affordability, which factors in buyers' expectations of future growth."
Does this remind anyone of the tech boom and Ebitda?
Don't worry that these companies are burning money hand over fist and have no profits in sight... 'old' valuation techniques (price/earnings ratios etc) are not so relevant anymore, Ebitda is the future.
So, FPDSavill tells us, if you add in the (largely uninformed) opinions on the future price of houses from the man on the Clapham omnibus you can ALMOST (but not actually) explain how we have got to the current pricing levels.
Of course that is still a long way short of actually explaining WHY the current pricing levels are in fact correct.
It also means that once the man on the Clapham omnibus changes his mind about the future growth of house prices (for example he suddenly realises that incomes have not been growing at nearly the right pace to sustain these levels, or that he has suffered money illusion or that he looked at nominal interest rates not real interest rates) then the 'prop' can be pulled away exceptionally quickly.
Right, back to work - my boss wants me to come up with a "new" way to value Mars Bars.
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The fact that rents are pretty flat or down in some cases while house prices have been flying high somewhat shoots down the bullish argument that there is simply a shortage of accomodation.
If the issue was genuinely a lack of roofs (rooves?) to put over people heads then rents would be flying too - and the price rises might make sense.
I'm in London so not strictly relevant to your post but my rent has not moved in two-and-a-half years.
I laughed when my landlord suggested it, and offered to move out, he backed down... quickly. The last time we discussed it he was very quick to tell me he won't cut the rent... I hadn't even suggested it... it is pretty clear where his thinking is.
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Property Shortage: Myth or fact?
in House prices and the economy
Posted
TTRTR,
I think he was referring to your 'Newbie' status - having recently joined the new forum.