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Everything posted by Van

  1. I'm sure Sledgey will give us a much better explaination, but here's mine. Gearing simply means how much borrowing you have against the value of your house. If you have a mortgage worth 95% of the house value (i.e. 5% equity), we can say that your "loan to value" is 95% (i.e. you are highly geared). Many BTLs have used the trick of rising house prices to release equity from the last house, and using this as the deposit for their next BTL property, resulting in a large but very highly geared portfolio. Why is high gearing a problem? Apart from larger mortgage payments, it exposes you to a greater risk of negative equity (ie negative gearing) if house prices fall to below the value of the mortgage. This can then lead to big problems if you become a forced seller. Gearing allows you to take an initial investment and magnify your profits. So if you have a 10k deposit and buy a £100k house, and you manage to sell it at £200k, you have multiplied your investment by 10:1. On the downside, you are exposing yourself to a potential loss of up to £100k from your initial £10k investment. That's what gearing does: magnify the potential gains, but also the potential losses. If you are interested, this concept also used in the corporate world in the form of leveraged buyouts.
  2. Despite my dislike of that Wriglesworth fella, I actually think that Rightmove, together with ODPM are the most accurate indices outside of the land registry. I think you're right to look at the swing in the ratio of buyers to sellers. The change in sentiment that begun with Merv's warning is now beginning to change supply and demand levels - price will have to follow. All the leading indicators are that the health of the market has worsening for the last two months: viewings per sale, number of weeks on the market, percentage of asking price achieved, and number of transactions. In London, of course, this is even more the case. Unfortunately, I think that headlines like we've had today - "Number of millionaires doubles because of house prices" have hammered the 'high prices is good' mentality into the public subconscious, and it will take a will for it to be dispelled.
  3. Pensions are generally linked to stocks and bonds, so should perform better than property over the long run. As ever, the problem is: what constitutes the long run? At the moment we are in a pretty bad bear market in equities, and right at the peak of a property bull market; so working out the compounded growth rate of the last 30-40 years is just about as unfair a comparison as you can get. Anyway, the numbers from the original article are so flawed that one could spend all day pulling it apart.
  4. This doesn't surprise me, really. I remember looking at remortgaging about 6-7 months ago and it was plainly obvious to me that the deals were not that great. In fact, that probably went a long way into convincing me to sell up. Either they have a low introductory offer for a couple of years which then locked you into SVR for 5-6 years with BIG redemption penalties, or else their rates were no better than what I was currently on. It's obvious that with an army of beancounting boffs at their disposal, the lenders are going to get their money one way or another.
  5. TTRTR, Yeah, I agree with you for once. p/e for a a house isn't quite the same thing as for a stock and should by all accounts be lower. IMHO, a rental yield of interest rates +around 3-4% is where market should be, whatever that works out to in terms of p/e. Just exercising my brain from all the value investing stuff I've been reading recently!
  6. Adam bear, Finally, in answer to your question: The long term growth rate of property is about 2.5% in real terms.. so let's be generous and say 6% nominally. By Lynch's ratings, that would mean a p/e of 6 would be fair value. Or, by his more fully all-round formula: gives us: [0 (prices have topped out) + 7 (annual yield)] / 16 (current p/e), or a Lynch rating of about 0.44.
  7. Hmm. Sorry, got a little carried away there. The expected long-term p/e is heavily dependent on long term real interest rates, as with all assets, earnings are in comparison to other asset classes. If we really are in a low-IR era, then this would justify a higher p/e because the return on cash and other assets is not so great.
  8. >> So what is the accepted long-term p/e ratio? p/e is a good indicator of how "hot" a stock is currently running. Generally, anything below about 10 is relatively cool; anything above 20 is hot. This can vary a lot depending on the company's and sector's prospects; if it is expected that a company is about to hit the jackpot or the sector is about to boom, you might find p/e of 30 or 40 in anticipation of this. Back during dotcom days, p/e's of 500 were not uncommon. Think about that!! It would take the company 500 years at present earning levels for the company to earn back the value of what had been invested in it - clearly a case of bubble madness. p/e's also tend to be lower for large company's like utilities that are in mature industries and might only be expected to grow a few % a year. Peter Lynch (former manager of record breaking Magellan Fund) reckons that, roughly, the p/e should be equal to a company's expected yearly growth rate. So a company that is expect to grow 10% a year would have a p/e of 10, 15% growth, p/e of 15 etc.. He also has another fascinating formula for working out if a stock is good value: [% Annual earnings grow + % dividend yield] ----------------------------------------------------- p/e ratio Generally anything below 1 is poor; 1.5 is fair; 2+ is great.
  9. I've been tracking the number of properties for sale in my postcode on Rightmove. Although each week, 40 or 50 new properties have been coming onto the market, overall the number of properties for sale has hardly changed, so sales are just about managing to keep up with new instructions at this point. Rightmove seems to confirm that - my borough being one of the London Boroughs to register a 0.0% changes this month. Still lots of overpriced stuff that has been unsold since the beginning of the year, some reduced slightly, some not. It's beginning to whiff of dead fish.
  10. That's right.. what you do is turn up at the forecourt of a Porsche dealer, mosying around the £60k models... and a test drive and a few hours later haggle the desperate dealer down to £38k - an anecdote I can personally vouch for (alas I was not the benefactor) at the depths of the last recession/housing crash.
  11. Plateau my ass! Plateau will only be acheived if ratio of buyers and sellers are in equilibrium. This is not the case. In London, Buyers fell by 8.1%, while vendors increased by 4.5%. That is an overall change of 12.6% - or a 6.3% swing from sellers to buyers. What we need is a Peter Snow housing market swing-o-meter like they do for the General Election. You can just picture it now: David Dimbleby: "Over to you, Peter!" Peter Snow (waves his arms around in front of the big BBC screen):" Thank you David! Well now, let's look at what that means on our national house price swingometer. A month's 6.3% swing away from the seller, in favour of the seller... if we extrapolate that to a yearly forecast, we can see that the annual house price would, we estimate, fall by some 20% a year... And it's even WORSE for the homeowner if initial reports are to be believed, that these are only the tip of the iceberg! - David!" David Dimbleby: "Thank you, Peter. Over to Professor Oswald.. what do you make of that? Sensational!" [Andrew Oswald is sitting in the studio next to Kirsty Allsop, trying desperately hard not to look very smug...]
  12. Yeah, Bear Goggles. Some of us are still getting close to asking price - I got 99% of only back in June because I priced realistically. To offset this, there must be a fair few properties that are getting 85-90% of asking price. Makes you wonder...
  13. Links are now fixed. UK Down 0.1%. London down 0.3% following 0.4% fall the previous month. Agreed price as percentage of asking prices in London are now only 93.7%. They say: "..The number of new properties listed has increased by 4.5% in August following a rise of 6.1% last month. These figures represent an excess supply of houses on the London market at present." EH!?!?!??????? Excess compared to the number of buyers, don't they mean, as properties for sales were supposedly at record low levels from earlier in the year. It's only an excess of supply if there aren't enough buyers!! Lots more to digest in the report.
  14. BBB/TTRTR/LL Good point. Another determining factor should surely be what the *real* rental yields are, accounting for CGT. If you have 6% yield on property worth £200k, but selling it will cost you £40k in CGT which is not unrealistic, your adjusted yield is more like 8.5% on the realisable value of your BTL. Not bad.
  15. Hometrack's August report is available online: Headlines are: - house price slowdown confirmed as number of buyers reduce for the second month running - sales fall as london market slumps http://www.hometrack.co.uk/index.cfm?fusea...sitem&newsid=84 http://www.hometrack.co.uk/index.cfm?fusea...sitem&newsid=85
  16. Greed comes before a fall. This is exactly how people lost out last time. People missed the peak but refused to believe that that the price of their home could possibly ever go down. Eventually when reality sunk in, it was too late and they lost out bigtime.
  17. That Oswald needs to get his forecasting sorted out. He predicts price falls in late 2002 only for the market to accelerate away, and now writes "that damn apple just won't fall" when the falls have begun in earnest!
  18. It's all about herd mentality. Buyers behave in herds. That has what has driven prices this high, and it's exactly what will ensure the bust is fully realised when prices start falling. I agree that there could be a GSD back to trend if every buyer was rational, but they simply aren't; if they were, prices wouldn't have been driven this high, so there is no reason to assume they will start behaving rationally when the market is in reverse.
  19. Warning: Stat attack. The average national salary for a full time worker (39.2 hrs/week) is currently about £26,200/pa. The median is about £22k - the mean figure is skewed by the small (but growning) number of people earning very high salaries - i.e. the pay gap is increasing. 16% earn less than £13k, 40% earn less than £18k, 61% earn less than 24k, and 90% earn less than 40k. Extrapolating from these figures, almost exactly two-thirds of us earn less than the average wage.
  20. You can take the scientific approach and look at price/average earnings, year-on-year decline, state of the economy etc. Alternatively, and probably an even better barometer, is the Dinner Party Test . Simply bring up the topic of property ownership (or any other investment) at a dinner party. Tell them you are looking to invest in property. The responses you will get will range from: a- "Property?!?. Are you mad?! It's still going down. You're throwing your money away." The conversation dies after 30 seconds. The smart money gets in at this stage. b- "Umm. Interesting. Houses are all nice and good, but for living in and not investing in. Don't you know my grannie lost most of her pension on property ". The conversation lasts at most 3 minutes and moves on to something else. c- "Property? Yeah, I hear that's a growth area. I'm looking for somewhere to stick the inheritance from my 90 year old great aunt. Tell me more. " Everyone will be drawn into the conversation during the course of the evening. At this point we're well into a bull market run and likely heading for big trouble. d- "Property? Way ahead of you, mate. l already own 6 BTLs. You wanna look at that new development on Mckenzie Rd 6 blocks away.. blah blah blah..." At this stage, everyone from great aunt Sally to Joe the confectionary store manager is giving you tips on property as an investment. The market is well overheated and primed for a fall.
  21. It's true that more mortgages are joint now than used to be, but this is only because a joint mortgage is *needed* at these rediculous price levels. The joint-salary argument doesn't hold up under closer examination, anyway. I remember about 6 months ago looking at some figures which showed the amount we spend on housing as a percentage of GDP - it was right at the same level as the peak in 1989. If an economy earns so much, there is only a certain sustainable proportion of national wealth that we can allocate to housing. However you cut the cake, we are now spending more of our national income on housing than at any time in the past, therefore whether a house is bought on 1 salary or 2 salaries is immaterial - overall percentage of disposable household income is what really counts.
  22. Sky report seems to cite August figures, but Hometrack's website is still stuck on the July report - presumably they have given their initial finds to the press before making the detailed reported available online. Looks like national prices have fallen 0.1% for two months in a row. Percentage of asking price achieved is 94.9%, down from 95.5% in July and 96.2% in June. Will be very interested to see the detailed report and the figures for London.
  23. What happened? Swervin' Mervyn decided to cut IRs to 3.5% around this time last year. Bad choice which stoked the market up by another 10% and ensuring the coming crash will be that little bit worse than it otherwise would have been. The other major factor was the post-Iraq bounce which helped the feel-good factor. It's really as simple as that.
  24. Don't know if anybody else has noticed this. On Rightmove's website, two local estate agents in my area (Home Seekers and Bairstow Eves Countrywide) are employing the morally questionable tactic of slapping a "Sold STC" on every single one of their properties listed. I haven't bothered to check with them because I'm a hundred percent confident that this is misrepresentation. This is tantamount to fraud and the sort of stuff that fines are dished out for (like the EAs who were recently fined for putting up "Sold" signs outside their directors houses). Some EAs are decent and conduct their business properly and fairly, but there are also a lot of cowboys out there that give the whole industry a bad name. I feel sorry for anyone who's been duped into instructing these conmen. Not an uncommon observation, I'm sure. Anyone else noticed similar practices? The other thing I noticed from Rightmove is that houses seem to come off the market without SSTC; I presume that it costs money to advertise on Rightmove and EAs like to keep their costs down by removing the advert once a sale has been agreed in principle.
  25. Hmm. I suppose it depends on what you mean by a "diversified portfolio", Bubble Pricker. I would say that you need shares in at least a dozen different companies, and preferably over 20-30, across several industry sectors. Anything less than that, IMVHO, is if placing your eggs in, if not one, then still too few baskets. "Slowly but surely" is a good strategy when investing. On a portfolio of 20 different shares, it is still easily possible to beat the market average by just avoiding sectors that are clearly doing badly, and investing well in companies that are doing well.
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