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House Price Crash Forum


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Everything posted by Tommy

  1. ok, if the guy has really bet 500 pounds he has lost them. What a waste of money! I feel sorry for him.
  2. http://news.bbc.co.uk/1/hi/health/6157219.stm average is 106k. this is for GPs and not all doctors. you might also want to read (which claims some GPs are getting even 250k): http://news.bbc.co.uk/1/hi/health/4917454.stm Tommy
  3. why?! having 200k equity for someone in his early 30s is easy. For example if you bougth a house for 100k in your early 20s, now, 10 yers later is likely to be worth over 250k at least (if you are lucky even 300k). 250k - 100k = 150k + capital repayments in 10 years: easy to have 200k. As for the other 500k... Assuming a joint income of 140k gross per year, it takes a 3.5 x multiplier to get to the 500k. So all he and his wife need is good jobs, 70k on average each. With over 10 years working experience is not impossible, and in places like london is even easier. For example a couple of young doctors in their early 30s can easily get over 100k each and with >200k joint income they can easily get a 500k mortgage with no problem. This without any help from mum or dad.
  4. 5.5% on 500k interest only is 27,500 which is about 2,292 pounds a month. Assuming you are right and to rent to rent a similar place is about 2k then he would be pocketing less than 300 pounds a month. The interests on his equity (at 5% net) would be 833 pounds a month. So considering 0 house price inflation he would be 1,125 pounds a month better off renting. Assuming however a 2% house price inflation, 2% of 700k is 1,167 pounds a month, which means that he would be already better off buying (42 pounds a month better off (on equity)). Assuming a 4% house price inflation the equity would increase by 2,333 pounds a month, so he would be 1208 pounds a month better off buying than renting. Assuming a -4% house price inflation he would be far better off renting! and so on... So it really depends on how things go, without the crystal ball you cannot be sure if renting is the right decision or not (and the same applies to buying of course).
  5. If you, like me, are more interested in nominal prices (borrowers should be), then you might want to know that in Q3 1989 when house prices where at the peak, just before the crash, the average house cost was 62,782. The lowest point during the crash was in Q4 1993 when the average house price was 51,050. In Q1 1998 the average house price was back at 62,903, since then it has become 175,554 in Q1 2007. The interesting thing is that in Q2 1988 the average house price was 48,932, so in 1993 the average house price was still higher than a year before the crash started. As you can see the fall in nominal prices although tangible was not that extreme. The problem was that interest rates were very high and if they forced you to sell (because you had not enough money to repay your mortgage) then in 1993 you would have lost about 10k, which is bad. However people who bought at the peak and were not forced to sell did not really lose out. Ok in 1989 they might have paid the house 10k more than what they would have paid it in 1993, but looking at it now in 2007, 10k out of 175k is not really that much. Plus you have to look at it this way: I bought a house in 1989 for 62k and it's now worth 175k!!! The only thing you need to make sure is that you are very unlikely to have to sell your house in the event of a crash with high interest rates (>10%). If you do in the event of a crash you are not going to lose out. If there is no crash on the other hand, the decision to buy now was by far the best decision. So if you want to buy a house and keep it for many years and your financial situation is stable and you are not everstretching yourself and maybe you're insured against losing your job, then I see no reason not to buy. If a crash happens you're covered and in the long term is going to be a good investment anyway (although if you knew you might have wanted to wait for it). If a crash does not happen, well, easy enough, you've made the best decision. Some people have been predicting a crash since 2003 and some of them have been postponing buying a house till after the crash. The bad news is that even if the crash was to happen now it would be unlikely that prices would go down again to the 2003 level. So those should have bought then (easy to say now!). So if you wait you might make the same mistake (or you might be making the right choice). I know there are many people that very agressively believe that a crash WILL happen, and they leave no chance for things to go otherwise. However anybody a bit rational would admit that the future is never certain. - a crash could happen right now - a crash could happen in 3 years time (are you going to wait 3 years plus the 3 years for the sticky house prices to go down? and then go down to what level?) - stagnation in nomial terms could occur - a slow decrease in nominal prices could occur - etc... Of the above you should only wait in the first case. In the second case prices could never reach the 2007 level and even if they did well it would still avoid you having to rent for 6 years. You should come up with probabilities for each possible house market direction and then come up with a plan that will be the best (given the probabilities you've given). So if the first option is 15% probable (and the rest together is 855) then you should probably buy now, if you think the first option is 80% probable then you should not buy now. Are you sure a crash will happen? If so, when? Now? in 6 months time? in a year time? in 3 years time? Hope this gives the idea. My only advice is: if you are going to buy a house now it's really not the time to stretch yourself. Tommy
  6. You should wait to see what it sells for, it will certainly sell for well over 150k, and I think it might sell for more than 180k and beat the 2005 price. Also assuming this gets sold at 150k, what would it mean? Nothing! I do not understand all your excitement. It means that it most probably is a repo, it means that if they sell it for the minimum reserve price of 150k the bank is happy as it can get all the money back, if they sell it for more it's just a bonus. This does not mean prices are going down.
  7. I am sorry... notice that I have said: "if prices in london had not gone crazy" I quickly looked at the web page and I assumed it was London. No, I agree with you, 595k for such an apartment in Liverpool (even if it's very nice) is far too much. For London it would have been acceptable, but I have a feeling now that it would cost far more... Having said this I am sure there are many people making over 100k in Liverpool. The question is exactly the one you've raised: "Are these people willing to pay all this money for this apartment and also the 5k a year to pay the charges?" My question if it was in London would not doubt be yes. Now that I know it's in Liverpool I am not so sure anymore so I think that it might sell for much less than asked.
  8. I must say it's a very very nice apartment and it's in a fantastic location. 595k sounds like a lot to me, but you have to understand that there are lot of people wanting a place like this and so they push the market price up unfortunately. I think that 300k would be an adequate price for it if prices in london had not gone crazy. The real scandal is the 1060 service charge per quarter: 4240 pounds per year (plus 280 ground rent and 491 building insurance). Let's say you pay 595k cash and buy the place, then you still have to pay 418 pounds a month in charges... - I think it will sell very close to the asking price. - I think it will take a very very long time for it to reach a million. I would be surprised if it reached a million before 10 years from now.
  9. Yeah, a friend of mine, a pharmacist from europe who came to work here in the uk had to wait for 9 months to be able to get a proper debit card, all banks would give him a "solo" card at most. The only bank account he managed to open was with the bank the company usually deals with after they sent the branch a letter.
  10. what are you saying? You open a bank account, get your salary into it and put the excess salary each month in a better saving account. What is wrong with it? This is exemplary behaviour, unlike the example you're giving which is the opposite. I understand they make more money if you leave the momey there with 0.1% interests and if you pay some overdraft charge here and there, but this does not justify closing your account. Imagine if all banks did this. You would have no bank account (which is essential nowadays) unless you start behaving irresponsibly as well...
  11. Yeah, I always pay my credit card in full every month and my credit limit is tiny. Everytime I need to go abroad for work I struggle and so I have to pay extra money into the credit card (thus going above zero). I keep asking for a credit limit increase every 6 months but they always offer me the pity increase (50 pounds, max 100 pounds). I have had that card for over 3 years now (and it's my only credit card). My credit score is impeccable and I am a home owner (I have have a report). A friend of mine on the other hand has credit card debts. He has about 9k in total, over 2 cards. Has paid late a couple of times and he is not a home owner... They keep offering him more and more credit limit. He could have twice as much debt on the cards if he wanted to. I will have to switch to another credi card provider I guess, hopefully from the credit report they can only see that I pay on time all the time and they cannot see that I never pay any interest...
  12. Stagnation can occur even without the help of high inflation. Many european countries have had many years of house price growth betwen 0% and CPI on average (this is what I call stagnation, which is a small decline in real terms). > We often hear the argument that it is rare for prices to fall in a crash I say another thing: "It is rare for house prices to crash". They can decrease, they can stagnate, they can increase, but it is very rare that they crash (and by crash I mean a big decrease). Since 1953 there has been only one crash, the one that started in 1989, all the other "events" were merely falls in real terms only (only if you factor in inflation). Now, I do get your argument that inflation used to be much higher and "helped", but now we might not have such high inflation, but we have a very high demand and a more stable economy. > During the last crash, inflation got plenty high but prices still fell 15% in nominal terms. True and it was a unique event. > Stagnation is off the table, unless parliament repeals the law. > Only a crash is possible. You are certainly very convinced: "only a crash is possible". I appreciate more when people say things like: "A crash is by far the most likely event". From my side I say: "A big crash is unlikely but possible. I think we will have a small but prolonged fall in real terms which in nominal terms will be a period of stagnation; this period might as well start with a small decrease in nomial prices at first".
  13. if this was the case then house prices would not be as bad as they are and the graphs from nationwide titled "house prices adjusted for inflation" would show a completely different picture. I understand why you are bringing out the Broad money M4, but frankly, my everyday life is affected by RPI (roughly) and not by M4. M4 has recently been a better indication than RPI for asset price inflation, but not for inflation in general.
  14. I do not agree, but assuming you were right... A small decline in prices only in real terms (only once you factored in inflation) is really the hint that GreatCrash2 is happening, or is more a hint that the market is cooling down?
  15. I do not think that prices have peaked in October 2004 and you cannot use a house (or a stree) as an example anyway... A friend of mine has bought a house in november 2004 for 132k and he's put it on the market for 167k (it might not sell for 167k, but if that is supposed to be the market price, it gives a good indication anyway). You cannot look at a single house. My friend is making a profit which maybe is bigger than average (especially for yorkshire). Somebody else might sell for less because the area has become more dangerous or because he went bankrupt and the house was sold at an auction. I doubt we've had a 10% fall in real terms in the last few years.
  16. You say this but.... I have 40k deposit. I borrow 160k. I buy a 200k property. The tenant will pay for my interests on the mortgage. I will get the 2.3% HPI you are talking about... Thing is: 2.3% on the value of 200k is 4.6k per year. Consider now that I have only put 40k in the house (the rest is borrowed), so 4.6k is 11.5% of 40k. In other words a 2.3% HPI (which is very low and possibly below inflation) will still give me 11.5% capital gain if you consider that the tenant is paying the interests on the mortgage and I have (virtually) the additional 160k for free. Now the above example is too simplicistic, you have to account for: void periods, agency fees, bad tenants, capital gain tax, etc... But in general it gives the idea. Also: > Inflation is running at about 6% 6%? RPI is at 4.8% but will probably be less by the end of the year and CPI is even lower. Where do you get the 6% from? > It may already be too late to sell as the peak has long gone What too late to sell?
  17. Thanks for the clarification. I understand your point. I have always thought it's a much nicer feeling to own a place then to just rent it, and usually, in the long term, it's also better for financial purposes. But I now understand that the rental situation is much better in Germany than here. Thanks.
  18. If you overstretch yourself and invest irrationally it's only your own fault. Investing in property is relatively safe, if you invest without guarding yourself against interest rate rises and possible HPI declines then you are looking for trouble. I do not know what you want me to say.
  19. I agree with most things you say except: It might well be that properties are 30% overvalued and you are right, but the way you calculated the percentage by wich they are overvalued is probably not sound. Can you describe it to us? Also you can get plenty of data on http://www.nationwide.co.uk/hpi/
  20. :-) yeah, but 4.8% is not final data, it should go down a bit before the end of the year. Also RPI includes HPI, if you already own a house you are banking on HPI already so you migh want to look at some inflation figure without HPI like CPI which is always lower. So, his pay rise is likely to be a pay rise and not a "pay cut". If you are renting however, and do not own a house, you are not banking on HPI and so you should be looking at RPI including housing inflation (since sooner or later you'll probably buy). So you saving account (or ISA or bond) should give you more than RPI which was recently said to be a 4.8% although is likely to go down a bit before the end of the year.
  21. Well, yeas, even if it depends by your definition of short, medium and long term. Mine, for property investment is: - flipping = <3 months - short term = <24 months - medium term = <10 years - long term= >=10 years in Q1 1989 the average house price was 59,534 in Q3 1997 the average house price was 60,754 (the lowest was Q1 1993: 50,128) In this case it took over 8 years which is indeed a long time. However, since 1952, nothing like this ever happened (except in the 90's crash). So do not take the crash of the early 90's as the norm, the crash of the 90's was a unique exceptional case (that could repeat, but it's unlikely). As you can see even the lowest point in the 90's was not incredibly low, if you invest in stock shares you can lose much more than 16%. This is why I say it can be a bit risky in the short and medium term, relatively safe in the long term.
  22. I mean that house prices could continue to go up but below RPI on average, then one quarter sometimes they could go down, then up again below RPI (sometimes with peaks above RPI as well). I am not talking about a complete stagnation, flat line. I consider stagnation anything from 0% to <= RPI% on average. This would still show as a decline if you factor in inflation of course, but prices will not actually go down, in fact they will go up. I am not excluding a small decline in prices, I am just saying that stagnation is also possible. Also: > which never happens. never say never.
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