This Is One Cash Buyer .....

[LuckyOne]

Starting in January of this year, I began to look quite seriously at the housing market. As prices fell and Sterling weakened, I started to sell Dollars.

By March / April, it looked like prices might fall to a level that made sense in Dollar terms and we got close to buying something a few times.

Since June, prices started to transact at levels above those that made sense. The recent rally in Sterling adds to the problem.

We decided last week to completely give up on the idea of buying a house and I will write a cheque to-day to pay for two years worth of rent upfront. The rent is a 4% annual yield based on a price 30% below peak.

I am taking the Sterling that I had allocated towards a house purchase and converting it back to the basket of currencies that matches my asset allocation and will hold it the risky portion of my asset allocation in cash until mid-November.

The currency gains will roughly pay for my rent. I expect my assets to outperform house prices over the next two years so I am pleased with where I am.

While I am only one person, I suspect that the recent rise in house prices and Sterling is going to chase away more than one "cash rich overseas buyer".

[Deckard]

You expect £ to weaken from here, against both $ and Euro? Any targets/timeframes in mind?

Cheers

[ma-ku]

We decided last week to completely give up on the idea of buying a house and I will write a cheque to-day to pay for two years worth of rent upfront. The rent is a 4% annual yield based on a price 30% below peak.

Is that not somewhat risky given that it seems that many landlords are defaulting on the mortgage payments leading to their tenants being evicted by the bank's baliffs? Have you credit checked your landlord? Wouldn't it be better to have a third party hold the funds and release the rent monthly?

Edited August 6, 2009 by ma-ku

[LuckyOne]

You expect £ to weaken from here, against both $ and Euro? Any targets/timeframes in mind?

Cheers

It is more of a willingness to take my profits than expectation of an immediate big weakening.

I know that I am usually too early when I change my positions around. A further run up to around 1.75/1.80 vs the $ by mid-September is not out of the question but is not a risk that I am willing to take.

I expect a return to risk aversion starting in early autumn which puts 1.45 to 1.50 on my radar by the end of the year.

I still subscribe to the theory that this has been a giant bull trap. It has let me undo some of my preparations to buy a house at a profit so I will reset and wait for this phase to be over.

I am happy to sell at 1.70 ish having bought all the way from 1.60ish to 1.40ish. It is not a new position here as I have just got back to being flat to my target allocations after taking a house out of the calculation.

My positions were really a matter of gathering Sterling in anticipation of buying a house. Now that I have decided to delay buying a house for at least two years, I have more Sterling than I need and not enough of the basket of currencies that I actually want to hold.

[LuckyOne]

Is that not somewhat risky given that it seems that many landlords are defaulting on the mortgage payments leading to their tenants being evicted by the bank's baliffs? Have you credit checked your landlord? Wouldn't it be better to have a third party hold the funds and release the rent monthly?

You are right. I have oversimplified my description of what I have actually done. I have made sure that my credit risk is mitigated and that my leverage to ensure that repairs etc on done in a timely manner is maintained.