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Sledgehead

Bubble Speak : Consuming = Investing

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This is an old favourite of mine.

People assume bricks and mortar are better than share certificates because bricks and mortar are tangible.

But anything that can be touched is subject to wear and tear. So while that share certificate sits annonymously and maintenance free in the safety deposit box, property is being ravaged by nature and soiled by sticky fingers. To keep it presentable HUGE sums have to be spent.

"Surely not!" say the perma-bulls, "It's bricks and mortar." Previously I've had to make these sorts see that the odd jobs they do week in week out amount to a full scale "property ladder" effort if done all at once in, say 20 years time. If you consider the cost of some of Sarah Beaney's featured conversions, you'll know they can represent some 100% of the fiver-up purchase price, or 50% of th efinal value.

This calls into serious doubt the investment case for property. Whilst we see prices double, how much money has vanished in maintenance?

A new survey out reckons the average amount of monet spent on a house i snow some £350 / month or £4450 pa.

According to the latest ODPM figures :

"The Office for the Deputy Prime Minister said the average house price in July stood at 186,207 "

House price inflation eases in July-govt, Reuters 12 Sept

That's ~2.5% pa effective depreciation.

When you consider long run HPI is only equal to general inflation, and by the time you've paid the council tax, the insurance and mortgage interest, makes you wonder what real growth is left.... outside of bubbles.

Forgive me for cribbing quanting on TMF, but it was such a nice summary I couldn't resist :

Nominal Prices (according to Nationwide):

Q4 1973 - £ 9,767

Q1 2004 - £140,225

Average HPI per annum: 9.2%

Real Prices (Inflation adjusted, Q3 2003 as benchmark):

Q4 1973 - £ 71,900

Q1 2004 - £138,699

Average HPI per annum: 2.2%

Trend Prices (using an exponential best-fit curve):

Q4 1973 - £ 54,254

Q1 2004 - £ 92,357

Average HPI per annum: 1.8%

quanting, TMF

If 2.5% was the trend spend, it would wipe out ALL growth and some. SOME LONGTERM INVESTMENT!

Of course we are probbaly spending more now than usual, but it still makes you think....

The true benefit of a house is that it gives you somewhere to live. Beyond that the jury is out. Given that it is now cheaper to rent than buy, what attraction is there?

With flat prices, diddly squat of course. Truth is it's all down to leverage. Trend growth on a deposit isn't worth having, but trend growth on somebody elses borrowed money makes sense in times of rising prices. In times of falling prices it's a recipe for disaster.

Edited by Sledgehead

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I can believe it! And add 50% if you've got kids! :lol:

This is a good point and I've never seen it this way.

When you're doing your house up you always feel like you're adding value. (OK, if you're adding another couple of rooms you probably are, but I'm thinking here of the more routine stuff). But most of the time you're just patching up the depreciation. :unsure:

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Now add all the transactional costs/stamp duty too when you move or have to move more times than you anticipate.

Picked the wrong area for schooling, need to move for a better/any job. It all adds up. On the downwave this whole process is far more uncomfortable.

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£350 per month is hard to believe. You can always rely on a survey to state the ridiculous and then proclaim it as the truth because it is a survey. Then the BBC and other media idiots pick up on it and propagate the nonsense.

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Good posts which illustrate the 'invisible costs' of OO; a feature which most owners conveniently ignore.

I estimate the carry costs of home ownership are currently around 8% per annum, a figure which includes the opportunity cost of the equity tied up, mortgage costs, insurance and maintenance. This figure does not include amortisation of legal and stamp duty costs and ignores the risk of a substantial capital loss in a falling property market.

When one can rent for 5% or less of capital value, risk-free, is it suprising that the smart money has fled property?

Edited by Red Baron

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£350 per month is hard to believe. You can always rely on a survey to state the ridiculous and then proclaim it as the truth because it is a survey. Then the BBC and other media idiots pick up on it and propagate the nonsense.

Ever had a plumber in? And that's just one day in the month.

Now let's suppose while you are cutting the lawn a non-oo sleeps / relaxes. Next week he puts in 2 hrs overtime cos he's refreshed from his weekend. Alternatively he reads the finance pages / surfs the web and realises a whole 12 months b4 you that the prop bubble is over... or impresses his boss by having hi sfinger on the pulse of xyz. Cost, opportunity cost, it's all the same thing.

Don't be so defensive Pilt. Free your mind. You accept a car costs a fortune to run. Is it so difficult to let one new negative prop thought into your head? B)

Edited by Sledgehead

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£350 / month is a hell of a lot, and possibly is an exaggeration to get a good story.. but then think of what a lot of people spend on carpets, curtains, etc ... the occasional big job such as mending the roof or repointing... then add in the cost of extensions, new conservatories etc. If you're a homeowner you're spending a hell of a lot on your house. With the recent interior decorating craze there must be a lot of people spending this kind of money and more.

Not me! Though I'll be frogmarching DH down to Focus to buy some white emulsion soon, I can't stand the way our house is falling to bits any longer! :lol:

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£350 / month is a hell of a lot, and possibly is an exaggeration to get a good story.. but then think of what a lot of people spend on carpets, curtains, etc ... the occasional big job such as mending the roof or repointing... then add in the cost of extensions, new conservatories etc.  If you're a homeowner you're spending a hell of a lot on your house.  With the recent interior decorating craze there must be a lot of people spending this kind of money and more.

And the biggest cost of all is your own time. How many hours do homeowners spend/waste decorating, repairing, improving, shopping for curtains, etc. etc. As Sledgehead more eloquantly points out above, your time is money.

Take that into account and £350/month is easily believable.

Edited by echapps

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  • 302 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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