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House Price Crash Forum

auk

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  1. I used to be a management consultant for one of the big strategy houses, working on private sector companies. Successful projects were ones where we were hired by a CEO (often new), who knew that something needed to be done, but required political and data backing to enable him/her to do it. This was the purpose of a consultant, to provide data driven evidence that the company should change strategy/fire people/make an acquisition etc, that the CEO could then use to push through reforms. In the cases where the CEO was a reluctant customer the project was inevitably utterly pointless. This is the problem with public sector consulting; no real buy in from the people who are meant to be the customers/ implementers. Very boring job. Lots of PowerPoint. I left after a few years.
  2. I think that this is a really key question; if we assume that, historically, rental yields have been ~8%; this is a real yield (i.e. rents go up with inflation, so if you buy a flat at £100,000 yielding 8%, £8,000 a year, then you could expect that, in 10 years, rent might be, say, £12,000, which would mean that it would be yielding 12% on your original purchase price in nominal terms, but still only 8% on your original purchase price in real terms, i.e. £100,000 adjusted for inflation). This is a pretty good yield. Risk free real interest rates (i.e. the yield that you get on TIPS/Index linked Gilts) is ~2.5%. Thus the risk premium on property is ~5.5%. This is pretty high and compares well with the dividend yield on shares. Total returns on shares have been higher since, overall, capital value of shares rises significantly higher than inflation. There is a good argument, I believe, that the risk premium is too high, and has been kept that high by the restriction of credit. Although clearly we are currently in a tight credit environment, there is, I think, a good argument that in the very long term credit for property will be looser than it has been, overall, for the past 100 years, and that thus the risk premium will stablilise at a lower rate. I wouldn't be suprised if prices overshoot on the downside to ~ 8% and then stabilise at ~ 6%. I shall seriously be thinking about buying a house if rental yields go to 8% in London (they are more like 5% at the moment, and perhaps 4% outside london). Of course this means that prices still have a way to go.
  3. Actually I agree with Bardon here. If I had, say, 50k in the bank, I would prefer to borrow another 50k at, say, 500 over LIBOR and keep my cash liquidity rather than put all my equity into a house. Equity is expensive for a reason. Obviously from the bank's point of view, they want borrowers to put in genuine cash equity.
  4. Don't suppose anyone knows what's happening with Pan Peninsula?
  5. What has basically happened is this a ) Galliard launches pre-sales way before the building is built. Sells a few flats (say 50%) at super high prices b ) Credit crunch then happens. Sales dry up. c ) Galliard can't reduce the price to sell the rest of the flats, since this would make it impossible for the people who pre-bought to complete (the banks would never lend them the money). d) Galliard completes the building and forces the pre-buyers to complete at the inflated prices e) Galliard can now sell the remaining flats at the market price f) Galliard has borrowed loads of money from the bank. Because of the huge profit margin, if it sells the remaining flats at 50% off it can actually pay back the bank (i.e. it's not insolvent on this development) g) The bank has a covenant saying that the loan must be paid back by X h) Therefore Galliard has to sell a.s.a.p.
  6. Don't suppose anyone knows anything about what's happening with the large number of people who can't complete on Pan Peninsula? It's a pretty interesting situation. I'd love to know if Ballymore are going to end up taking people to court...
  7. The reason that a lot of young people aren't saving / putting money into a pension is that they are paying off debt. This is "net saving", and, in a lot of cases will be perfectly rational (paying off credit card debts/ personal loans incurring a high interest rate would be more sensible than leaving these debts and paying money into a pension).
  8. Hmm. These guys have a really interesting business model. Quite clever actually. They buy places with regulated tenants and then hold until they die, when they can sell out at normal market prices.
  9. If you really believe that inflation is on its way (more than the market), you could buy zero coupon inflation swaps. This is a pretty pure way of "buying" inflation.
  10. You work with Bill Bonner? really? I agree with your general thesis, but there are other inflation hedges that don't have the disadvantage of being hugely overpriced.
  11. I agree, obviously, but I was talking about something completely different. Never mind.
  12. With all due respect, you're ignoring the "all other things being equal" bit at the beginning of my post. The OP wanted to know what the effect of general money / price inflation was on the house asset purchase decision.
  13. Yes they are. Their income stream is rent, which, generally, goes up with inflation (although in the short term the price fluctuates with supply and demand).
  14. Very broadly, all other things being equal, it's good to buy inflation linked assets (like houses), either with debt or without if you believe that inflation will, over the period of your investment, be higher than the market is pricing in (i.e that inflation will be higher than market expectations). This is because backward looking (actual) real interest rates will be lower than the forward looking (expected) market clearing rate (which is ~2-3% in the medium term, except in times of extraordinary stress). If you are buying with debt, it's especially good to buy in this scenario, since, not only do you get the inflation protection, but you pay a below market rate price for the leverage. Incidentally, this is why, despite the usual claims, it's better to buy a house in times of high nominal rates (high inflation) than in times of lower rates. Buying in a time of high rates is more expensive in nominal terms earlier on (which is why asset prices go down; most people can't afford to frontload the interest burden), but the debt principal reduces in real terms quickly.
  15. That is nice. Exactly the kind of thing I'll be looking for eventually I hope! http://www.mouseprice.com/house-prices/lan...=-1&Mode=SP I think it's probably the one that went for 750k in 2002...
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