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Demographia - 7 Th Annual Housing Affordability Report

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Check out the most unaffordable areas of the UK

They're 'avin' a laff!

Rural Devon is indeed not cheap (though only one area - Totnes/South Hams - wouldn't look cheap compared to the southeast), and has few high incomes. But Plymouth is pretty cheap, and has been constantly falling since a 2007 peak. I've still half a mind to buy for cash, to cut out the rent!

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How about interest rates what is their historical norm ?

About 8%.

You could go on forever though. Price inflation vs. wage inflation, mortgage rates vs base rates, Personal taxation levels etc etc.

Point is, at these prices, volumes have collapsed.

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The United Kingdom has a Median Multiple of 5.2, well above the historic maximum norm of 3.0.

...3.0 was the norm in the UK maybe 15 years ago ...just before BTL....Cal Smith was aware of the the best value in US Metropolitian Areas ....

http://www.youtube.com/watch?v=r5tl09rpWEE

..Saginaw is still number 1 affordable.... :rolleyes:

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But Plymouth is pretty cheap, and has been constantly falling since a 2007 peak. I've still half a mind to buy for cash, to cut out the rent!

Perhaps, but compared to the average wage for the area it's hugely overpriced, lots of locals complaining townies are buying up the houses, see threads about ghost villages that are all second homes.

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Perhaps, but compared to the average wage for the area it's hugely overpriced, lots of locals complaining townies are buying up the houses, see threads about ghost villages that are all second homes.

Did you read what I posted?

I was drawing the distinction between rural Devon (pricey and little-changed since 2005 peak) and Plymouth (cheap and falling constantly since 2007 peak).

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How about interest rates what is their historical norm ?

Yes, what will happen when they rise? Let me just think about that.

In BArdonworld - prices will soar. Clever Bardon.

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Your words, not mine.

I was merely pointing another major flaw in this analyses when you are comparing countries with differing interest rates against each other, more of the same apples against pears that this report is chock a block full of, but I guess it is okay as long as it paints a bearish picture.

The other historical 3 x income house price affordability ratio that some bears despeartely cling to is no longer valid, because interest rates are historically low, and a large number of buyers today have large deposits, dual incomes, and high disposable income. These are the variables that drive property markets.

The main determinant of value (as opposed to price), is the relationship between long term rental yields and long term funding rates.

Much of the world is overpriced on this basis.

What you have described are the necessary conditions for a bubble to emerge. The more important question is whether the bubble (and the necessary conditions that you have described) can be sustained. Large deposits rely on the continuation of the bubble, dual incomes and high disposable incomes are at risk and long term funding rates are probably going higher rather than lower.

Property markets are notoriously slow to react to changes in the fundamentals. I would argue that they are in the process of turning and that an adept speculator might still have a chance to make some more money or lose some but that the time for long term investors to buy has already passed.

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So one interesting thing that this report has shown is that Honk Kong could bea sweet spot for investment, given the yield.

Where is old Blubbypants when you need him? He recently sold his 8 or 10 Hong Kong properties.

Property in Hong Kong has recently (in the last 6 months) returned to its highest peak.

Theres a mother of crashes waiting to happen right here.

Now is not the time to invest in Hong Kong property.

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Well do you think that interest rates should be considered to give you a more meaningful assessment ?

how long do you think rates will last at these levels? you cant judge value based just on todays costs of a mortgage, because they tend to go on for 25 years.

interest rates are not at natural position. a certain debt crisis has caused us to take emergency measures, which are only storing up trouble if we stay down here for too long.

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Yield sest the value for commercial property buy not residential. If it did the a balcksmith would still be able to buy a property in the sqaure mile just like he did in the olden days. No one would buy a property in London and would indstead buy terraces in Burnley until the prices rose such tha tth yield further sout was bettre and so on. Some cash flow investors do just that but as their are more owners than invetors and investors that speculate on growth yield does not set teh value of house prices.

The main factor that sets the value is based on human emotions these are the is is the principal value driver. That is why we get very high house prices in areas that people like to live. WHcih is predominately in large urbansied aeras on the seaboard. Human emotion has no limit so therefore values have no limit either. Supported by a credit market that must grow we will continue to see house prices rise in desirable areas.

At a global level I dont see any reason why the market will not perform as it always has done, I dont see any risk to large deposits, dual incomes and in some areas rates are at a very low base so you would expect them to rise.

Yes the slow reaction of the market is one of its strengths compared to the volatility of shares allowing you to get in and out before the ripple either way hits. Again I dont see any reason why well placed residential property wont continue to increase in value at 7-10% pa in the long term. I am sure that an active speculator could derive a better return than this but for me its the passive element that suits me.

I think that you are talking about behaviour during a bubble when professional investors have left the market.

The marginal buyer in a stable or declining environment is the professional investor who is very much of a yield based buyer. Professional investors worry about cash flow and long term funding certainty (both in terms of rate relative to yield and availability) and not about capital gains.

Prices in my part of NW London would have to drop by about 70% before professional investors would get really interested.

Amateur investors seem to care about price appreciation and not about certain positive cashflows. They can do amazingly well for long periods of time but have a tendancy to get wiped out once every 15 to 20 years. I don't know when the next wipe-out will happen but it doesn't feel to be too far away.

It should be noted that there are a lot of property investors manage professional amounts of money but still act like amateurs. All amateurs eventually end up in the same boat.

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Human emotion has no limit so therefore values have no limit either. Supported by a credit market that must grow we will continue to see house prices rise in desirable areas.

Sounds like true folly. Credit created by a housing market has to flow back as income to the debtors to allow the debt to be paid. Who are sitting on the biggest cash piles in the world today? Seems theres a blockage in the pipes.

Edited by Alan B'Stard MP

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No I am talking about the homeowner that in most of the western markets has the largest share of the market, emotion is their driver when they buy, not yield. So say thats 60%, then of the remaining 40% say that 10% (asbolute max) of them invest for cash flow. That leaves 30% investing for growth and probably contributing to the holding costs. During a slump the cash flow investor is right, the homeowner decides to wait it out until prices recover and some of the growth investors might get nervous paying for a falling asset and quit, either of the three sets may hit hard times and have to bale unexpectedly. Overall the homeowners that dont have to sell by far the majority of the group will prevent a mass exodus and crash in price the kind that you can get in shares when its all investor and emotions.

I agree with you for most of the in most of the cycles.

It is in those relatively short periods of time in the most extreme cycles that the rich get richer because they are patient.

I believe that we are getting very close to seeing history repeat itself where capital returns to the prudent, patient investors from the speculators (whether witting or unwitting).

I also agree with your point that not all witting or unwitting speculators will get wiped out : just enough will though to reward patience.

Time will tell who is right.

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More debt allows previous debt to be paid, a temporary blockage will break through with back pressure the pipeline is sound.

Not if the great % doesn't flow back as income to J6P it doesn't. PONZI finance.

Edited by Alan B'Stard MP

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Wow.......... so many places are classified as severely unaffordable...... what chance do the youngsters have?

Younger people are mobile and adventerous. Across all economic groups, the will, net, move from places with high house prices to places with low house prices.

I can see the ad painted on the side of a taxi now : "Educated, young and advenuteous? Move to xxx where you can afford to live well"

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That reports a load of mince.

Glasgow and Blackpool markets are seriously unaffordable? :huh:

To me the report should be titled "Housing desirability rankings", there's a reason Saginaw and Flint are at the bottom, they're dumps :lol:

What is a median house anyway? A three bed semi?

And are you seriously telling me the median household income in Uk cities is around 25-30k?

Edit: didn't expect Wikipedia to confirm this so succinctly - the two most crime ridden cities are the two most affordable, how surprising.

During the 1980s and 1990s, Flint gained a reputation as a crime ridden example of deindustrialization. According to FBI statistics the violent crime rate in Flint has been in the top five among U.S. cities with a population of at least 50,000 people for the years 2007, 2008, 2009, and 2010. In 2007 the FBI ranked Flint as the second most violent city in the U.S, while in both 2008 and 2009 Flint had the fifth highest violent crime rate.

According to Federal Bureau of Investigation statistics Saginaw has ranked as the number one most violent city in America from 2003 through September 2010 when the most recent statistics were released.

Edited by bingobob777

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Wow.......... so many places are classified as severely unaffordable...... what chance do the youngsters have?

Glasgow is rated as severely unaffordable, living there I can tell you there are thousands of affordable houses for youngsters.

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Glasgow is rated as severely unaffordable, living there I can tell you there are thousands of affordable houses for youngsters.

Certainly not as bad as Edinburgh - but not exactly good value from what I have seen.

How many 25 years olds in Glasgow can get their hands on the deposit required ? Or would be ok with the mortgage if interest raets rose ?

And I don't class heroin profits as acceptable. :P

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Besides what other inflation proof, income generating, bank financed, hard asset, essential human need investment class could match the relative safety and growth offered by residential property ?

The evidence seems to suggest that property does not universally meet your criteria as evidenced in the last 5 to 20 years in places like Ireland, Spain, Germany, much of the United States and Japan.

I do agree with your point of view that some / many are able to ride out the cycles. Once again though, the evidence is clear : not everyone can ride out the cycles and for some it results in a total destruction of perceived wealth.

I do not think that buying at to-day's prices in much of Australia, Canada or the UK increases the odds of riding out the next cycle based on the data in the report.

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I would argue the point with you on them all except for Japan as this strategy doesn't work in countries with declining populations. My argument would be based on a forty year time basis which should be considered the average investment duration term for an average passive growth investor. As for riding out the cycle this equates to maintaining the reducing serviceability level of your debt, a borrow and hold investor who does not mitigate this risk is definitely exposed.

Using your time horizon, I assume that you are suggesting that a 25 to 35 year old investor without a lot of accumulated capital should buy now in places like Oz, Canada and the UK. Based on what you have said before, this should be on an IO basis.

My view is that the total cost of ownership for said investor will be somewhere between 50% and 65% of today's total cost if they wait a few years with a much higher chance of being able to ride out the cycles.

I don't disagree with your overall thesis just with the timing of the execution. Buying during the death throes of a bursting bubble is not investing.

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