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Hellraise

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  1. Hi, was bored today, so with my wife we decided to have a go at some house hunt (or was it EA hunt?) in the Bracknell area. Visited 4 EAs + 3 builders. Results as follow: Good: * All 4 EAs in Bracknell towncenter: we were the only customers when entering and when getting out. This was on a Saturday, after lunch time, with street full of people. All except one had 2 visible employees (other was alone). * 3 builders: they were in a new development area (Jennett's Park) and there was 2 other couple that also visited the 3 builders. Overheard one of them say they were FTB. 2 employee per builder showroom. * One of the builders had a "christmas offer" for people who wanted to buy now certain lots. I think relates to paying stamp duty * Builder employees were quite smiling till I started mentionning the 40% decline in the press and from IMF. Really quickly changed subject when I started saying that their houses were nice, but given the price I'd risk getting massively in negatve equity. Most said that the market here is different. when I mentionned that North of England new builds were collapsing, they said again that market was different and that they didn't expect a crash here. * One builder employee did confess remembering the last crash and how painful it was The not so Good * offers at EAs are at delusional levels: went I went home, I checked some of their suggestions on housepricemaps, and turns out that the asking prices were ALL higher than the highest recorded transaction of the street. Will be interesting to see if they sell or if they will end up on propertysnake. * builders: all silly prices, circa £300k for 3 beds and £400k+ for 4 beds. Some crap appartments or those ugly thingies above garage.. * expected builders to be begging for my money, suggesting incentives, but no, they still looked at me with a condescending view when I said I'd be ready to fork £200k for a 4 bed. * One of the builder's employee still has a genuine bullish sentiment, she believed that as the develoment will go till 2013, people working on it "have a job for life almost". Can't wait to see that changing So here it is, we did enjoy the nice sunny day, had a good laugh at times, and still some frustration that those **** prices are still not collapsing. As a bonus question to the HPC community, we're interested in knowing when would builders start massively slashing prices, and how to get them to talk about those cuts. As far as I understand, HPC will come first through forced selling and through builders as those don't have the luxury of holding unsold houses. So based on current credit environment, when could we expect seing builders begging for buyer's attention and give big sales headline like in the US?
  2. The OP is true, but it doesn't tell the whole picture. Sure, few pay Income tax, but those that do pay it live in a world of hurt, especially single people or young couples. A lot of French are leaving the country because of taxation, and quite a few do end up in the UK! So why is that? because, on top of Income tax, you have social security and state pension! where here people spend what? 10%? let's say 7% to 12% of their income on NHS & co, in France it's more like 18% to 22% (don't recall the exact number as it's been a while). VAT is roughly similar, petrol is expensive (taxed as hell), and there are a lot of local taxes four council, region and such (+ TV tax, killer inheritance tax, etc...). Plus french earn less than people in the UK (but a lot of stuff is cheaper too). If I were to take a view, I would say that single or just married, better live in the UK, one kid no difference, 2 or more kids, France is easier to live in. I'll probably go back there once I get to 2 kids, and enjoy the social protection while it lasts (which it will not for long). With some luck, House Prices will have bottomed by then. Hope this clarifies a bit things.
  3. This is a cultural bias: owning one's property is not a basic human right. What is a very primordial right is the right to have an affordable roof. But whether this is accomplished through renting or buying is a different matter. Take a country like France. The split between rent and ownership was 50/50 last time I looked (yeah that was a few years ago, might have changed since). Are you then saying that a country in top 5/10 economies in the world, which is not ultra liberal, that has a tendency to annoy everyone with how they invented revolution and human rights, etc... that this country has been depriving its citizen from a basic human right? And worse, that its citizen that go on strike for any random reason have never complained nor rioted over that point? I have rented all my life, but do plan to buy one day when it will not cost me 2 kidneys to do that, however I have not considered ownership to be a human right. Probably due to having lived in different countries where ownership is not the only accepted model. So in short, let's all keep on praying for GC2, because the current situation does not make sense, and because, in an ideal world, we should have the choice of choosing between buying and renting and not be cornered into this decision. cheers
  4. Thought about maintenance, but I'd be suprised that it is that high. Probably depends on the age and quality of the good though (£2k per year seems really a lot on maintenance) Regarding the loss of interest, I am not forgetting that, since everything is brought to today's value through the NPV formula. And the opportunity cost I use is basically the net of tax risk free interest rate. So since all the futur cash flows are brought to today's value it is comparable to the deposit and I am comparing apple with apples. (sorry but struggling to explain the concept a bit more clearly. Someone might want to chime in and elaborate )
  5. Hi there. It’s my first post here, so please don’t shred me to pieces (but feedback is always welcome). First some background to answer the categorising ones amongst you: I consider myself a bear, although I have been sorely disappointed at times with regards to the timing of the crash. I still do believe that a massive correction is due, but am still am not fully convinced it has started in the UK (I must be a bit like St Thomas, I’ll only believe it when I can afford a house ). And yes, I’m a FTB and am hoping for a massive crash (although I hope it doesn’t end up in a recession that will affect millions including me. But imho there will be a recession…) Presentation done, I’d like to adress the financially savvy amongst you. I have long adored modelling economic things, at personal or corporate level. One of things I like is comparing renting versus buying. And my models almost invariably showed renting a better return. However, my models only looked 20 to 30 years in the future. I have just recently done a very high level, basic model but this time looking forward 50 years (ie around my life expectancy). And the result was profoundly disturbing: buying was ways better, even at silly inflated prices. I believe I made a logical mistake, so I come to the den of bearishness for help. My model goes on as such: - first I look at the NPV (net present value) of renting for the next 50 years. - I assumed a rent of £700/ month = £8400/year - I assumed an opportunity cost of 3.5% (should be roughly net risk free interest) - I also assumed a rent inflation of 1.5% per year - This give an NPV of £253k (this means that all the outgoing spends for the next 50 years are equivalent to spending today £253k cash) So a first conclusion is that any house of less than £253k would be better to buy in cash (if I only could) rather than rent. This seems absolutely ludicrous, as the flat I rent is currently valued £200k and is probably worth around £150k (was bought circa £130k 4 years ago). Still, this reasoning would indicate I should be happy to fork in £200k cash (which I don’t have) as long term it would be better than renting…. Going a step further, as very very few people can afford to pay cash, I assumed what would happen if paying 10% upfront on a 20 year 6.5% mortgage. It turns out that a house sold at £210k would result in: - £21k upfront cash out (the 10% deposit) - £189k at 6.5% which result in £17k per annum for 20 years - the NPV of this at 3.5% is £255k So again, the conclusion of this would be that I should buy the flat I live in as long as it is less than £210k, which again is a shocking number. Basically, while I can afford easily my rent, I’d need to sell my 2 kidneys and go through a life of debt at massive gearing and risk… but the financials say it makes sense! So where did my reasoning go wrong? Of course, being a simplistic model, it assumes a few things: - That I do not move houses resulting in a profit/loss, or that any changes are financially neutral. Real life is always different, but for a theoretical model I believe it is a valid assumption. - Interests, rent inflation, mortgage rate assumptions may be tweaked, but do not result in a directionally different number. - Of course, I would miss out on the opportunity of GC2 of buying cheap. But still it says that buying an overpriced £200-£250k range is better long term than paying rent… I’ll wait for GC2 because I know I can make it much more interesting, but still an odd conclusion… So in short, the above would mean that if we were to assume that prices are not expected to move, current valuation prices, whilst at odds with affordability, history, etc.. are actually still a good bargain on the long term versus renting. Help me out guys, that above conclusion does not seem to make any sense, but it is probably something so obvious that I can’t spot it. H
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