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Exiled

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  1. The above is true but: If a person bought a house now at 200K they will pay back so much over time. If HP's crash and I buy a similar house in 4 years for 140K I will pay back so much over time. In the 140K scenario, the state of the market and economy will probably mean I will be paying a higher interest rate when I buy the property. However the person who bought the house for 200k will have to pay a higher interest rate on 200k as opposed to 140K. My exposure to further rates rises will be a lot lower than the 200K person. Over the majority of the lifetimes of the loans we would be paying the same interest rate but on vastly diiferent amounts, Taking a rough historical average of 8% then I would pay 200K less in interest. That more that covers the rent I paid for the first 4 years. Its about timing it right. opportunity cost and all that. It may be 2 positive outcomes but one is more positive than the other.
  2. Don't worry in 2 years time I will still be happy I haven't bought a house.
  3. are the 8 to 1 odds for any increase not something silly like a 10% plus increase. Are these odds quoted by an actual bookie. It would make me very confident if a bookie was pricing odds for a falling market, they all seem to have some great minds working for them. only once or twice have I ever been able to spot small chinks in their pricing to get some value in placing a bet.
  4. Recently added a post on a tread about blank swan events. One of the points I made was about how people view timescales. If you listen to the average person, The world will change to the way they want it in 2 years. Every thing lasted for 2 years, everything will change in 2 years or prices will stagnate for 2 years. Don't know why, seems to be inbuilt in to humans, everything is 2 years.
  5. Tired, Thats a bit similar to my own experience (Degree, very good career and pay packet but still unable to save a lot of money rapidly). However, when I have looked around at the market, I have always thought, If someone in my position cannot very easily get a 2/3 bed semi detached in a working class area, then very very few people should be able to without taking on ridiculous amounts of debt so obviously theres a lot of houses built on sand.
  6. The problem with trying to fit real world situations to theories such as the black swan, the tipping point and chaos theory is that we tend to try and make an event rigidally fit the theory. It doesn't actually happen like that. People on this forum have said that 9/11 was a black swan, It was and it wasn't. It wasn't the first terrorist attack on the world trade centre and it wasn't the first time a plane had been used as a weapon (lockerbie and kamizaze WW2). The specific event could be described as a black swan event but there was plenty of evidence to indicate that is was a possibilty. In the book 'the black swan' there is a example using turkeys. The turkey gets fed every day, so every day feels more secure that life is good but eventually the turkey stops getting fed and is killed. Applied to the housing market: Due to the frame of reference with regard to timescales that humans tend to use we are prone to fall into the new paradigm fallacy. The last crash to the average FTB did not happen, all the data a 28yr old has based on personal experience is that house prices keep getting higher and higher. Even for the majority of people who 'clearly' remember the last crash, they don't remember it clearly. For instance, I have spent 18yrs of my 28yr life in education, however I don't remember spending 4 yrs at university. I know I did but as I graduated 6 years ago, its so far in the past that it only feels like I spent 2 years at uni. In the same way many people (both bears and bulls) believe that even if the market crashes, things will have picked up again in 2 years or so. Very few people I know (again both bulls and bears) are even considering that the BOE base rate could be 8% in 2 years. Many owners who have bought near the peak ,and potential FTBers who are praying for a crash, are still expecting cheap credit in 2 years time. I don't knock books like freakanomics, black swan and the tipping point. The are very good reads and well researched and I suggest you read then if you haven't. However, all those books have a tendency to lead the reader down to a mindset of 'here's how it happens, here's the answer, follow this theory and you will be alright'. If you take a combination of the theories and are intelligent then you have a higher chance of getting a rough prediction of the future correct. My views on the housing market are based on: Historical cycles ( Did business at a-level and had a teacher who said economies work on cycles because they just do - one of the best pieces of advice I have ever had). An understanding of how when dealing with systems that are effected by many factors, small changes can have small impacts under certain conditions but the same small changes can have massive impacts under very slightly different conditions. (Did maths and physics at A-Level and have an engineering degree, also read the tipping point and books on chaos theory). My background has meant that I looked at the housing market, looked at average HP, average earnings, thought that ratio was very high and concluded that the market was in a position where small events could have a massive negitive impact. I didn't foresee NR or the credit crunch but knew that a event would happen that would tip the market over. It wasn't the event that was the issue, it was that the market was extermely vunerable to any event (I get a cold, no big deal. A 90yr old gets a cold, could die because of it) Realised that banks would lend imprudent amounts in good conditions as they were in competition with each other and the reward system rewarded risks but also that in a downturn the banks would seek to reduce exposure massively to avoid being left holding the baby. (bits of Game Theory). Now I believe that the central banks actions in trying to stem this 'credit crunch' leads to a high chance that inflation will take hold in the major economies and interest rates will rise significantly in the medium term. ( Read economics for dummies). I am 70% confident that in 3 to 4 years time I will buy my firsy property with my partner. 3/4 bed detached in se england (in okay area) for between 160 and 180K (in todays money). The BOE base rate will be between 6-9%. In effect, I will not be getting the house very cheap as the mortage repayment will be a significant proportion of joint income, however the interest rate will change over time ( when it is in a low period I will fix for the longest period i can) but most importantly, the prinicple debt will not be ridiculous. I will not owe any more than 4 times my salary.
  7. The daily express headline is a perfect example of the type of spin that many people will swallow. The "This is just a blip and its now a great time to buy" argument that some people will still fall for. One of the main reasons for the growth in HP lasting for much longer than many bearish experts expected is due to the continual reinforcement of positive reporting and the fact that human beings have trouble with timescales. When YOY becomes significantly negative the average punter will only then start to expect that house price falls are becoming the norm and not a blip. YOY combined with reporting of percentage falls since peak and the major difficulties recent interest only buyers are going to be finding themselves in with be the initiator for the real fun slide downwards. Granted all the turmoil in the housing market won't make it easier to buy, LTV ratios will remain conservative for a extended period and I suspect that in the next few years we may see 8,9,10% interest rates on mortgages. It is always important to remember ( Which no recent FTBer I have ever met seems to appreciate) Interest rates change, the original prinicpal does not.
  8. I'm sorry to say labrador that want you think buyers should do and what they CAN do are very different things. Prices could fall a LOT more before we hit the bottom. It is clear than lenders are now very risk adverse. It doesn't matter how unique YOUR property is, you could be reliant on finding a buyer who really wants your house and has the financial clout to give banks assurance to lend money on a currently depreicating asset. Developers can drop asking prices significantly in many cases. A 3/4 bed new build costs a developer about 60K excluding the price of the plot. Recently in NI some developers have been making near to 100% per property. Remember sale agreed is not the same as sold.
  9. DON'T let impatience get the better of you. It is important to remember that the property market doesn't work on time scales that we seem to be naturally comfortable with. It seems to be human nature that when we see a trend for 2 or 3 years, we think that its forever. I believe it will take 3 to 4 years for the market to bottom out so if you think that prices will fall significantly in the next few months you will most likely be mistaken.
  10. In volatile economic conditions it is not enough to take the view ' I will buy when the cost of rent is greater than the cost of a mortgage'. All people thinking of 'getting on the ladder' really need to ask themselves the following questions. 1) How much do you really like the property. Are you prepared to live there for an extended period of time as economic conditions may dictate you are stuck there for a while. 2) Can I afford the mortgage repayments at 10% or double the current rate of interest (whatever is higher). The current acts of central banks are running the risks of introducing inflation and inflation is not easy to irrradicate from the economy. AND REMEMBER. Rent is not dead money, it is an opportunity cost.
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