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  1. Plenty of people here get a principle along those lines but its too superficial a generalisation - its what it means and whether or how or when it is correct that matters. In terms of outgoing cash (whether currently or over life of mortgage) one can show examples where one can spend the same or less cash buying an expensive house at low interest rates than a less expensive house at high interest rates. However, that does not go to the value of the asset you have bought and whether it is a "good thing" (which is why the use of "cheaper" is misleading and inaccurate) - as the prevailing and long term interest rates at any time in the future will also go to its value in the long run. Even if you fix your low rate for a long period that is no guarantee of affordability for the remaining years of the mortgage (as low rates going up is clearly worse than high rates coming down); and even if that were not a problem (or one fixed for 25 yrs) the value of your asset in future will be dicated the then prevailing cost of funds and market sentiment. eg If interest rates dropped to 0.25% someone could get a £1m repayment mortgage on "affordability" grounds at £3,500 a month (only 32k total interest burden!). Should one agree to pay £1m for a house that was once worth a fraction of that amount though (eg when interest rates were much higher) What is it really "worth"? If rates went to 5% or so from there the same monthly payment would only allow someone with the same cashflow to purchase a £600,000 property. What has happened to the "value" of the property? To try to make this clearer: If I buy a house with a 100% mortgage for £500,000 and interest rates are fixed (for arguments sake) at 6.7% for the life of my 25 year loan I will repay £500,000 of capital and £531,000 of interest - total cost to me in terms of drain on my income over the period = £1,031,000. If I buy an identical house next door with a 100% mortgage for £1000,000 at Japanese style interest rates of 0.25% I will repay £1,000,000 of capital and £31,000 of interest - total cost to me is the same £1,031,000. The difference is in one case I have bought the asset for £500k and the other for £1m - ie 50% of that amount....even though it has "cost me" the same in cashflow terms. Which is likely to have been the better decision relative to the long term likely "value" or "worth" of that property if I then chose to sell it? I know which. However, if "long run" HPs follow a trend (which they do) and there is also long term average interest rates (which average much higher than now or in the recent few years) it is more likely (IMO) that a house bought for a lot when rates are low will be "worth" less in future in real terms than the same house bought for less at higher rates (although the cashflow position may appear to make a contrary decision justifiable). If I were mischievous, I would say that the mantra that low interest rates increase affordability and is therefore a good thing (inherently ignoring the long term trends which go to "value") is what got everyone in this mess in the first place.
  2. Interesting debate. I must say I tend to fall in the camp that says the factors/variables are myriad albeit that wages and debt costs have a much more significant weighting in the mix than other factors. One observation on the "long term trend" for HPI: as our middle class has grown over the last 100 years and the wealth of both middle class and whatever counts as upper class these days (moneyed class?) has increased one could argue that there has also been: (i) an increase in retained/inherited wealth within families - even if only of magnitude of tens of thousands of pounds (but often much more into 6 figures) eg parents die and offspring sell house - which proceeds feed through into the system. Yes, some gets spent on consumer items, children etc but quite a bit will find its way into subsequent house purchases of those offspring; and (ii) a decrease in the average number of children per family which concentrates this retained wealth in fewer hands. What I think this could mean is that, even were the relative wages of offspring comparable with their parents they would have some wealth/cash to put towards housing purchase (the classic "bank of mum and dad" deposit) which is supplemented by their mortgage (usually maxed out to the then prevailing levels of "affordability" or earnings multiples from lenders). If this is right (and I welcome views as to whether anyone thinks this holds water) then there could be a long term increase in HPI (lets not try and suggest precisely what that might be in quantitive terms - in general terms I suspect it is a very small effect annually but aggregated over 30, 40, 60 years could be statistically significant ) based on this variable which is largely independent of wages and debt costs (although I immediately see that prevailing cost of living among toehr things could erode the amount that can be put to HP at the time and so, again there is interplay in the factors). Over 6/7 generations you could see this having some of the effects various people suggest above (eg 19c. workers cottages for £600k) in addition to the usual factors such as numbers of available housing, etc.
  3. We looked at a house on Coleford Road in late summer 1999, not sure the exact house number but was "twenty something". We also looked and nearly bought one in Fullerton Road but it was too much of a stretch and we were worried (!) that prices were getting a bit too high (we still remembered the early 90s). The Fullerton Road place was then £325,000 - now priced around £800k. The Coleford Road place was in the same ball park price wise £300-350k but of course most of the houses down in the Tonsleys have had side/rear/roof extensions since then which will have "added value". I don't know what they are really "worth" down there but best part of a million quid for an old (if extended) labourer's cottage sounds mad to me. I can see them back at £500-600k in a couple of years. Having said that, it is a cliquey area where a certain type of 20/30 something "PLU" with a city salary likes to live side by side with similar others/uni mates etc and nothing wrong with that if they want to pay to do so. It is locked off effectively on all sides by the A3 and the Wandsworth one way system so does offer (in the residents eyes) some "island exclusivity" which will always keeps its prices higher than average for such housing. If one can't afford to live there then do what we did and try the housing down between Wandsworth Common Northside and Earlsfield which offers more space/rooms and garden for much less money.
  4. The Daily Express et al are immaterial. Politicians worry about the Sun readers. The swing voters and the Murdoch effect which got NL to power and has sustained it. When will they decide that enough is enough and that they are soon going to fall behind their readers in where private economic matters are going? They will catch up soon and when they do it will "get interesting". You try selling papers to 3 million buyers (4-5 million readers) when they are in negative equity, strapped for cash, suffering inflation etc without eventually siding with them rather than the establishment... GB and crowd have a lesson or two to learn about where real allegiances lie. Murdoch left the tories high and dry and will do the same to New Labour (IMO). And pretty soon.
  5. tend to agree but childcare is also here to stay - only those where one of the couple is wealthy/earning enough can avoid it. ie if as DINKYs you buy a house then unless that is your "final" house (unusual) you will need to trade up - that can only happen if either prices reduce to eradicate the DINKY effect (whcih in the 25-35/40 age group is not likely given later child birth/careers etc) or you both work for a bit longer to meet the cost. I am not saying it is universal, far from it just that it has has a marked effect (even allowing for the mums who decide not to go back to work (hence why I suggest more of a very slight increase from the 3.5x average rather than a doubling). Still, not enough to prevent a massive crash but does influence the eventual floor. I am not in the market again perhaps ever but certainly not for 10-12 years. However, if I was I would be prepared to buy again when the published average (which in itself allows for a bit of a lag effect) drops below 4x average. That is not to say the bottom (with hindsight) will not go to or below 3.5x just that that in my view is where the practical base will have been seen to be (in about 2013!).
  6. First, I am a long time bear and am glad we are where we are (I thought we would be here 2 years ago but hey ho). I think the long run average has changed over the last 5-10 years from that before - someone has already pointed out that people are living and working longer, that may account for small element, but more importantly, even in the 80s the % of dual income supported mortgages was very low relative to the rest whereas now two working parents is pretty normal IMO(certainly for those between 25-40). Those mortgages need to be serviced over the long term. ie we have moved to a situation where a house can be bought based on two salaries - even at traditional multiples (3-3.5x) that would allow a higher price multple relative to average income. Someone would need to do the maths based on average incomes and the Govt figures which I think are available on the web as to average number of two income families. I would guess it could account for a permanent shift towards a price/income multiple (for the purposes of avergae prices) of around 4 times. That would have a big effect on the eventual bottom and timing and means (I think ) that we won't see average prices below 100k again but they could go to £140-150k. Either way, the crash will be big and maybe quicker than last time.
  7. The AAA rated tranches should be ok if they ae wrapped by a monoline insurer as they are rated AAA. The problems are in te tranches rated AAA where they rely on priority of recovery in cashflow/downside sensitivities and AA or A tranches. If and when they fall there will be carnage. I think it is time to buy non leveraged equities which have no or little exposure to financ/debt....
  8. What we are seeing in action is the very systemic risk that central bankers fear and are powerless to combat on a widespread scale, PPT or no PPT. Once it spreads from a one institution problem to a multiple institution problem there is nothing (and no amount of available money) to stop it. The plug is just pulled.
  9. This is just too simplistic. It has nothing to do with the lending standards of the banks per se. It all depends on what product the investor/fund has bought - which can be nothing like the product sold to the house buyer. That is the mentaility of the period before the last House PRice Boom. If it is is true A/AA/AAA grade MBS bond debt then maybe fine but there is little of that around - much is creidt enhanced, either structurally voia CDOs where there is synthetic slicing up of the risk tranches to enable some to trade in the A-AAA range with most of the debt in the B range or beloe (toxic waste). If the latter collaspes as the first loss portion then the rating on the former will suffer and, I can assure you, just as a tacker fund will sell a share that drops out of the FTSE, a pension or investment fund that has a a % of its portfolio in A-AAA grade securities WILL seel its holding toute de suite.
  10. This approach is what I meant in my post - this is just cobblers. See some of the other responses above. The HPI in 88/89 was not as uniform around the country as it has been over the last 5 years and that is reflected in the UK average figures for that period. But in the SE, nominal falls of 30-40% were plentiful - although I agree that if one didn't need to sell or remortgage that may have been off one's personal radar (although it was plastered over the papers regularly for years so I don't believe homeowners from that period were unaware it was going on). Nominal figures are meaningless - it is nothing to do with spin or ramping prices down - If you wish to the ignore "real" cost or value of things then you are welcome to do so but don't try to pretend that it is the rest of the world who are delusional in trying to strip out inflation from figures (any figures, HP or otherwise) to gain a true picture of trends. If I give you 10%pa in your savings account when inflation is 15% will you accept the nominal rate as ok? I doubt it. Your savings are actually declining in real terms by 5% a year. But clearly that is some fakery by "purist economists". Read the TMF article at least. It works both ways. You will find that after 89/90 the length of that crash meant that although most major nominal price falls stabilised after a few years it was only through a few years of stagnation that the real prices fell below trend - that was the opportunity to buy but many missed it as they were focussed on the nominal prices.
  11. Didn't mean to be unduly harsh Dan. Well intentioned I realise. Its just I got annoyed that your graph was hijacked by some (not you) to argue with conviction that previous crashes somehow weren't really crashes or had little effect at all! There have been some good threads in the past on here about this - although I know the different views about what it means for the future have never been settled. I learnt about it from TMF a long time back - theory, nominal and real graphs and all. http://boards.fool.co.uk/Message.asp?mid=8...&sort=whole Graphs may be a year or two out of date but that doesn't affect its analysis one bit. A cracking read for you and others here I think. Although TTID's post above sums it up beautifully succinctly for me.
  12. This thread is a waste of space - founded on an erroneous theory to start with. We have covered most of this in many other higher quality threads from an analytical point of view. Bottom line from someone around for the 1973-4, 1979-80 and 1989-90 periods is that there were nominal decreases in each case, increasing in their magnitude/severity as the inflation rates were lower in each case. Negative equity doesn't of itself cause unemployment/homelessness but it does prevent remortgaging (at least at affordable rates) or favourable work outs for borrowers. I leave it you all to decide what inflation rates of 2-3% will do to nominal prices (bearing in mind inflation in the 1970s was in the teens and higher at times and was near 10% in the late 80s...
  13. Very interesting. If I have this right, that is 25% (100k/400k) more primary school places not taken up since 1999. Even allowing for immigration mitigating this (the migrant population tends, I understand, to have higher birth rates) over time, what will 15% (say) less "workers" do for house prices (to say nothing of tax revenues, social security funding and pensions....). I get a bit Malthusian at these moments as hitting one's stride income wise in the years 2025-2030 (if you were born say 1995-2000) looks like a bleak time unless (i) we take in as many immigrants as we possibly can; (ii) continually work out what we can "sell" to the China and India et al that they don't have or can't make themselves to take advantage of their long term buying power; and (iii) somehow keep our hands on the world financial markets (er, tricky that one). When you think like this then buying a roof over your head and paying down the mortgage asap (even at inflated prices) has some attractions for one's twighlight years in what could be a difficult time for those not financially secure or have a home...
  14. What people forget in comparing IO mortgages (allowing you invest you principal elsewhere) and paying down principal as fast as possible is that if you pay down your mortgage in say 10 years rather than 25 you then you have (assuming the same cashflows/income for the period) the ability to invest debt free for 15 yrs...I would need to run it through excel but I am not convinced the usual arguments in favour of not paying down early tell the whole story. Over 25 yrs you compound your investment returns on the capital you invest which you would otherwise pay down but you always have the debt to pay down at the end so that has to be deducted from the overall total return. If you pay down over 10 years you have no debt but have 15 yrs of cashflow to invest debt free. My instict tells me that 15 years of compound returns of, say, 10% pa after tax is better than 25yrs of returns of 4% after tax and interest (ie the delta between the gross return on investment and the debt interest cost (say 5-6%) and tax) even without having to pay back the principal on the loan in the latter! Paying down early also reduces interest rate fluctuations effect on ability to repay. Anyone with excel to hand fancy crunching the numbers? In short, I think that the more disciplined you are the better it is to pay down and the earlier you do so the greater the advantages I outline above. Needless to say it is what I am doing. This ignores using IO/not paying down as a gearing play to acquire assets which may be income generating (a la BTL). That is a different question to that of an individual with one home.
  15. It is a great article - perhaps it will only be seen to be accurate in several years time. We did of course discuss this back in Oct 2005 (!) when it was a draft the month before it was issued in my thread below where there is other input from HPC members. http://www.housepricecrash.co.uk/forum/ind...c=17977&hl= Of course, we now have Japan dying (demographically) but with huge savings anda slowly reflating economy (perhaps...). It will be interesting to see how the Japanese part of the model and history sticks to this forecast and if we can lift any inference about our own demographics (govt sponsored immigration will artificially mitigate that).
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