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Why Buying Property Is No Panacea

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Some interesting figures:

Why buying property is no panacea

Friday 9th September 2011

ALLISTER HEATH

ANYBODY interested in the housing market and in trying to preserve their wealth in these uncertain times should take a look at a fascinating new book. Safe as Houses: a Historical Analysis of Property Prices is full of useful facts – and a stark reminder that investing in residential property isn’t as sure a bet as most people believe. Author Neil Monnery has studied house prices over the long term around the world and confirms that – globally – they tend to grow at one per cent above the rate of inflation over very long periods of time.

In Britain, as the Barclays Equity Guilt Study points out, real house prices grew by 2.4 per cent a year between 1952-2010, against 6.9 per cent for equities. However, Monnery’s original and extremely important research shows that real house prices grew by just 1.3 per cent a year between 1900 and 2010 (and by just 0.8 per cent a year until 1995, before the bubble). In the US, real house prices grew by 0.2 per cent a year between 1900 and 2010; in Norway, they grew by 0.9 per cent a year during that same 110-year period; in Australia by 1.4 per cent a year. In Amsterdam, he finds that they grew by 0.6 per cent a year on average over the past 110 years; they only rose 0.4 per cent per year since 1628.

The book also contains much other useful data. There is a nonsensical myth that the UK has uniquely high levels of home ownership and that hardly anybody owns their own home on the continent, where a rental culture apparently prevails. Yet in 2009 the home ownership rate in Spain was 85 per cent, 78 per cent in Belgium, 77 per cent in Norway, 75 per cent in Ireland, 70 per cent in Australia, 69 per cent in the UK, 67 per cent in the US and Canada, a still pretty high 57 per cent in France and a lower but still very sizeable 43 per cent in Germany. Yes, the Germans are much less likely to own their own homes but in general the difference has been greatly exaggerated. Another myth is that all economies saw house price rises during the boom. Yet since 1990, they have trended down in Germany, Switzerland and Japan and stagnated in Italy and Finland, for example.

Full article here >

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The average house prices *cannot*, over the long term, increase relative to inflation, just as the average income cannot.

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So, houses have grown around 1% above inflation over that period. Not bad, considering you also get to live in it.

Is anything else better than that? Equities have the problem of being more volatile so timing is more important on top of the annual management fees if you invest indirectly via some sort of fund. Also, the equities figure is always the average of the whole market - does anyone actually own shares in all the companies in the market? If not, you've also then got the risk of keeping on top of whatever sector is currently best performing (and transaction fees for changing).

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how will those figures stack up after 50% off peak...any mathematcians out there?

1.3% over 110 years compounded is around 400% so if prices fell 50% the increase would be around 200% or around 0.65% annually compounded. To get back to the 0.8% annual increase between 1900 and 1995 prices would need to fall by just over 40% from 2010 values.

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1.3% over 110 years compounded is around 400% so if prices fell 50% the increase would be around 200% or around 0.65% annually compounded. To get back to the 0.8% annual increase between 1900 and 1995 prices would need to fall by just over 40% from 2010 values.

Just what most sane people think!

I do belive the Low interest rate policy is now doing more harm than good. Most businesses in trouble are not being leant to anymore. Savers have lost £43billion in interest so far, which could have been spent and used in the economy. But instead it has been used to bolster the banks who have carried on lending mainly at far higher margins over base than ever in history.

The hosuing market would more quickly adjust to normal prices if interest rates were not articificially low. If the adjustemnt were enabled it would stop any silly decisions to buy into step purchase or subsidised mortgage schemes, all of which they will regret. It would prevent any temptation for parents to mortgage up a deposit for children, when the equitey should not be there and the price of buying should be much lower. Rents would soon fall. The BTL market would adjust and some would fail. The Govt would then have to pay less in Housing Benefit. People would feel better off and the market would function properly for 1st time buyers.

I would like to see what i rate business loans are currently being agreed at. If again margins are just being used to provide massive bank profits then I am against the low base rate any longer. If they are truly low rates for business borrowing and that's helping them, then a second, normalised base rate for property should be put in place.

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So, houses have grown around 1% above inflation over that period. Not bad, considering you also get to live in it.

Is anything else better than that? Equities have the problem of being more volatile so timing is more important on top of the annual management fees if you invest indirectly via some sort of fund. Also, the equities figure is always the average of the whole market - does anyone actually own shares in all the companies in the market? If not, you've also then got the risk of keeping on top of whatever sector is currently best performing (and transaction fees for changing).

Correct

I do not know anyone who bought prior to the start of the last decade who is not up on the purchase. Those that mewed might mess up and those who took on a few BTL's on IO mortgages might come unstuck but most have done well. Many of my peers got caught out in the last crash having bought at the top of the 80's boom , however those that stayed with it for a few years came out the other end and today would be laughing.

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But I can live in a house I can't live in a bunch of equities.

tim

But equities would usually pay you a dividend, which you can use to rent somewhere to live... whereas owning a house for 100 years - that's gonna need some maintence costs at some point...

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But equities would usually pay you a dividend, which you can use to rent somewhere to live... whereas owning a house for 100 years - that's gonna need some maintence costs at some point...

Yes and some of those dividends will be used to pay the agent's fees each year to draw up a contract , the credit check , the cost's of having to move when the landlord wants the place back , the reconection of the phone everytime someone moves.

The dividends would have to keep pace with rising rents ( way above inflation in many areas right now ) while the capital debt will not rise and will fall year on year if a repayment mortgage is taken .

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But equities would usually pay you a dividend, which you can use to rent somewhere to live... whereas owning a house for 100 years - that's gonna need some maintence costs at some point...

How many houses have fallen into disrepair / been knocked down in that timeframe too?

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The average house prices *cannot*, over the long term, increase relative to inflation, just as the average income cannot.

thats the key part "long term" how long are you willing to wait for them to revert to trend?

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But equities would usually pay you a dividend, which you can use to rent somewhere to live... whereas owning a house for 100 years - that's gonna need some maintence costs at some point...

leave the innumerate bulls to their delusion

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The average house prices *cannot*, over the long term, increase relative to inflation, just as the average income cannot.

Income and house prices can and do rise relative to inflation long-term. Your statement is plain wrong.

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Just what most sane people think!

I do belive the Low interest rate policy is now doing more harm than good. Most businesses in trouble are not being leant to anymore. Savers have lost £43billion in interest so far, which could have been spent and used in the economy. But instead it has been used to bolster the banks who have carried on lending mainly at far higher margins over base than ever in history.

The hosuing market would more quickly adjust to normal prices if interest rates were not articificially low. If the adjustemnt were enabled it would stop any silly decisions to buy into step purchase or subsidised mortgage schemes, all of which they will regret. It would prevent any temptation for parents to mortgage up a deposit for children, when the equitey should not be there and the price of buying should be much lower. Rents would soon fall. The BTL market would adjust and some would fail. The Govt would then have to pay less in Housing Benefit. People would feel better off and the market would function properly for 1st time buyers.

I would like to see what i rate business loans are currently being agreed at. If again margins are just being used to provide massive bank profits then I am against the low base rate any longer. If they are truly low rates for business borrowing and that's helping them, then a second, normalised base rate for property should be put in place.

I agree with your starting statement, but your conclusion is wrong

Sure the bankers kept some (much too much), but mostly its been a straight transfer from individuals who earn cash through work or savings to individuals who borrow

Sure pensioners have suffered in income terms but many have had some comfort through the value of their assets (housing and DB pensions) going up through low interest rates

The big winners have been the affulent part of the wage earning population with mortgages

The big losers are the poorer part of the population who have neither mortgages nor assets

All they see is just static or declining income and higher inflation

Thats just plain wrong :angry:

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That is a very poor rate of return considering the maintenance costs of about 4% pa., as has been pointed out, which basically leaves the average householder bankrupt or living in a derelict house unless he keep dipping into his pockets to feed the beast. Perhaps that is why the Anglo Saxon model leads to a bankrupt Nation and the renting Germans have the last laugh.

Edited by crashmonitor

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That is a very poor rate of return considering the maintenance costs of about 4% pa., as has been pointed out, which basically leaves the average householder bankrupt

Where does your 4% come from ?

How many average people who bought a house in 1986 and have just collected the deeds from the bank as the repayment mortgage has just finished ( a mortgage that has been easy to pay due to pay rises in the last 25 years ) are now being made bankrupt ?

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That is a very poor rate of return considering the maintenance costs of about 4% pa., as has been pointed out, which basically leaves the average householder bankrupt or living in a derelict house unless he keep dipping into his pockets to feed the beast. Perhaps that is why the Anglo Saxon model leads to a bankrupt Nation and the renting Germans have the last laugh.

Not disagreeing, but where do you get your 4% number from? There was a thread a while ago about what that % was and a large amount of disagreement...

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The big losers are the poorer part of the population who have neither mortgages nor assets

All they see is just static or declining income and higher inflation

Thats just plain wrong :angry:

it IS wrong, but at the same time these people represent the most captive and static cohort of Labour voters the country has - they voted for this mess, even tho they don't know it

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.........and maintain/repair it. ;)

Yes, true I suppose, forgot that! As always I guess it would depend on how the costs of rent vs. mortgage + maintenance + moving costs works out over the long term.

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So, houses have grown around 1% above inflation over that period. Not bad, considering you also get to live in it.

This is a long term measure. For most people, the critical points are the 25 years or so when they buy and pay off their mortgage. That is a much smaller section on the longer graph and is far more susceptible to the peaks and troughs as it bumps along the way. You could get utterly screwed over or set up for life depending on which point you enter the market.

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  • 334 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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