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Posts posted by VeryMeanReversion

  1. Comments on wrongmove posts:

    "it is just the dual income/BTL angle that I think your original post overlooked."

    It was a short post, here are some comments anyway:

    Dual income: I don't have the figures but personal experience says that dual incomes have been the norm since the 70's.

    A problem with second incomes when buying houses is that it tends to be variable in families with

    children. A variable income is not ideal in meeting a long-term, fixed monthly committment (although

    better than none of course). I bought (borrowed for) my first house on the basis of a single income

    for safety, then the second income was used to make capital repayments. This isn't practical at the

    current ratio so Mr/Mrs Mortgage are just taking big risks (without realising it IMHO)

    Loose Credit and BTL: My point is not that is doesn't have an effect, just that it can only be short-term. Subsidising

    low yielding assets won't be maintained. Mr Mortgage will do it for his principle residence but not

    for a BTL long term.

    To help resolve the dual income issue, when did this become the norm? Does anybody know?

    Comments on pluto post:

    I think student debts are covered in the long-term list (3). (Although shifting the student loan to credit cards then

    going bankrupt solves that problem for an individual. Ask the judge how much his student loan was).

    Comments on PropertyGuru post.

    I don't believe the 3.5 ratio has broken down either, but I do believe the trend (over my lifetime) in real prices is slowly downward.

    (The reason for the original post).

    Thanks for all the comments:


  2. Comments on brainclamp post.

    (1a) "Taxation simply takes your risky income, and redistributes it to other workers in incomes for

    safe-job industries like the NHS, Defense and for millions of unsackable non-jobs, who, with

    riskfree income, pay low interest mortgages on buy to let, which you have to rent with risky

    income, as you cannot access such low interest mortgages. "

    I have noticed the shift in risk (I work in the private sector) compared to friends working in "safe" jobs.

    I would still rather do my job.

    (1b) "Taxes don't 'take money out of the economy' or reduce houseprices."

    You would be right if all taxes went into public sector wage bills and this had no effect on the economy long-term.

    I dont think that's true.

    "[2] Mass immigration."

    Do you think this can be maintained long-term?

    "[3] Single digit IRs Irrelivent when money supply is in double digits."

    If the money supply is increasing due to investment in poor returning assets, its not sustainable.

    "[4] Tax breaks for landlords - see [1]."

    The tax breaks for landlords (interest/costs) have always been there, not a recent change. There doesn't seem to

    be further breaks on the horizon.

    In my opinion, deductibility of interest payments just seems to encourage overgearing. Then you get capital gains

    tax if prices rise, no tax relief if they fall. Funny really.

    "[5] Not if they never show in inflation, you juts get poorer - see [3]"

    Yes, you will get poorer, reducing income available for housing, whether or not inflation shows up in the figures.

    I think we got to agree on one point. :)

  3. Comments on Wrongmove post:

    Issue 1: You are right about a second income, but Datastream figures show the 3.5 ratio has been the average since 1960

    and appears to have been a base around the cycles through the 70's, 80' and 90's. (Although I do wonder what

    would have happened if the ERM exit fiasco hadn't occurred). It only "broke" down in the last few years.

    Issue 2: (Artificially) Cheap imports affect disposable income. True, but does it shift spending from consumer items to housing,

    or did we just buy more consumer goods?

    Issue 3: Reasons for 1st list permanent factors

    - Long-term demographics for (1) and (2), a predictable change in the worker/non-worker dependency ratio

    (a) Fewer workers, more dependents in general

    (B) Fewer workers at the higher income level (35-45 yr old). This peaked in 2005.

    © Spending will be biased towards the grey vote, i.e. the costly NHS

    => All requires increasing tax grab to maintain, not even improve "grey" services

    - Debt repayments. Mortgages/loans taken out already need to be paid back, up to 25 years of high repayments. (more for IO mortgages)

    - No known plans to reduce stamp duty or reinstate anything like Miras.

    - Commodity/Energy, just a personal opinion that we wont see a return to pre-2000 prices.

    Reasons for a "temporary" second list

    - Competing on a unlimited debt-basis, banks can change lending policy quickly, a few quarters of bad debts wakes them up

    - Expectation/sentiment/BTL-viabilty. All tied up in the herd "common sense" view, a few quarters of bad press changes this

    - Interest rates, changes on a monthly basis. Even fixed rates aren't fixed for long in practice. Worldwide upward pressure.

    - Immigration at 100K's per year. Maybe this should have been a permanent factor? It's looking permanent with EU expansion.

  4. (First Post from a long-term lurker)

    As a believer in mean reversion (house price to income ratio), I've been wondering what the new mean

    should be after the current hysteria sorts itself out.

    With the long-run mean being around 3.5, the following fundamental factors will reduce it in future:

    (1) Higher tax grab, ~42% of GDP and rising, reduces effective income for Mr Mortgage.

    (2) Demographics will reduce effective income of the mortgage paying population (unavoidable)

    (3) Long-term debt repayments reduce effective income (How about a £1.2 Trillion IVA?)

    (4) Higher stamp duty, loss of the old Miras

    (5) Higher commodity/energy costs increase fixed costs for Mr Mortgage.

    The factors that have been increasing the hpi ratio but appear to be short-term only:

    (1) Competing for houses on an unlimited-debt basis rather than equity+income

    (2) Expectations of permanent real price increases (i.e. sentiment)

    (3) Fashionable BTL "investments" for pension purposes (viable if yields high but otherwise the same as point 2)

    (4) Low interest rates that flattened the payment distribution profile throughout the mortgage term, making

    payments look cheaper in the short-term.

    (Mr Mortgage eventually realises his payments are not being significantly reduced through wage-inflation, there is no "ladder")

    (5) Permanently increasing immigration to boost housing demand and lower wages.

    It's hard to believe that a ratio even as low as 3.0 can be supported. Any opinions appreciated, contrary or otherwise.

    Disclaimer of current situation:

    Returned to the UK in 1996 to buy a house after watching the HPI ratio curve bottoming out. Previously worked

    for two dot.com companies in the US whilst thinking "This business doesn't make any sense...thanks for the cash".

    Sold mid-2003 to relocate for a new job, realised prices were mad so should rent as long as it takes for the

    madness to dissipate. Currently renting a £450K (price, not worth) house for under £1Kpcm, Gross yield 2.6%, thinking

    "This rent doesn't make sense...thanks for the house".

    I have the "luxury" of timing my re-entry back into the market, any time over the next 20 years would do. Minimising

    lifetime house purchases (stamp duty - now that's "dead money") and job insecurity (mobility) balance the desire

    to be a home "owner".

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