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Wurzel Of Highbridge

Interest Rates And Yields.

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Property yields

As interest rates have tended towards zero, asset (property) yields have headed lower just like government bond yields.

2nsqe06.png

( Gross )

John-D-Wood-yields-Jan-2013.png

Assuming the market is fairly efficient after costs BTL yields are bugger all and tend more towards bugger all. Isn't this a natural brake on house price inflation (based on yields and BTL).

Prices cannot go any higher by lowering interest rates, you would need to relax lending standards (further).

The end of BTL is here unless prices fall. :unsure:

Edited by Gone to Ireland.

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Property yields

As interest rates have tended towards zero, asset (property) yields have headed lower just like government bond yields.

2nsqe06.png

( Gross )

John-D-Wood-yields-Jan-2013.png

Assuming the market is fairly efficient after costs BTL yields are bugger all and tend more towards bugger all. Isn't this a natural brake on house price inflation (based on yields and BTL).

Prices cannot go any higher by lowering interest rates, you would need to relax lending standards (further).

The end of BTL is here unless prices fall. :unsure:

Would love to know the source of the second chart, but seems plausible enough given prices have outstripped rental growth in London by a wide margin. With gross yields of 3% or less, it's a pure play on capital gains or safety, for foreign money.

I think it's just suckers in China etc getting pulled in the same way UK punters were with foreign property in Dubai, Bulgaria etc etc.

Edited by cheeznbreed

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Would love to know the source of the second chart, but seems plausible enough given prices have outstripped rental growth in London by a wide margin. With gross yields of 3% or less, it's a pure play on capital gains or safety, for foreign money.

I think it's just suckers in China etc getting pulled in the same way UK punters were with foreign property in Dubai, Bulgaria etc etc.

2nd chart more info

Jan 2013

http://henrypryor.co...operties-value/

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2nd chart more info

Jan 2013

http://henrypryor.co...operties-value/

Beat me to it :)

Assuming that a market rent is being used in the calculation a property which shows a yield of 2% (net let alone gross) in my opinion is clearly over-priced. There are only two ways to increase the yield – increase the rent that is paid or lower the capital value. Whilst many sellers have an asking price that reflects a pitiful yield buyers should remember that sale prices are almost always lower even if the selling agent is embarrassed to admit it.

So, when you are trying to decide if a property is fair value calculate the yield. The selling agent will usually help you with a market rent and you can do the maths. If the seller won’t accept an offer based on a 5% gross yield then you need to decide just how much you love the property. Buying with your heart rather than your head is like falling in love with your spouse, a romantic idea that most of us do despite that knowledge that 44% of marriages end in divorce.

[edit] Perhaps this is why we have seen the London market stalling (to foreign buyers) in recent months?

Edited by Gone to Ireland.

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2nd chart more info

Jan 2013

http://henrypryor.co...operties-value/

Cheers. Cracking comment at the end from a property bull:

I enjoy following you on twitter and reading the occasional blog. I am very interested in investing in London residential property and have been doing it for a long time. I do not agree with your conclusion in this blog. Investing in residential property only makes sense if you take a very long term view (absolute minimum 10 yrs). It also only works if you expect capital growth as if you just want income commercial property will always be more attractive – especially if you compare net yields. You can only be sure of capital growth in the long term and then only if you buy a property which has certain characteristics. Most property is bought and valued as a home not as an investment – therefore rental yields bear no relationship to value in the way you imply.

:rolleyes:

The publishers of the data have a page with various graphs- the data has been updated by a couple of months since Pryor's post in January, looks like the downtrend is intact.

x0i9.jpg

The rents achieved are at levels first seen 6 years ago and might be softening after a dip/recovery when the crunch arrived:

5jgp.jpg

Assuming these data are accurate, is there any better illustration that prime London property is nothing more than an speculative bubble? Rents have been volatile, but a new entrant now has to sign on the line knowing that achievable rents are the same as six years ago, and look like heading lower, but the price is ~50% higher! Madness.

http://www.johndwood.co.uk/content/research/

http://www.johndwood.co.uk/r/surveyors/pdfs/rental/Prime-Central-London-Rental-Graph-and-Index.pdf

http://www.johndwood.co.uk/r/surveyors/pdfs/yields/Gross-Yields-for-Prime-Central-London.pdf

Edited by cheeznbreed

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Yes, but you are missing the point that somebody who bought a 300K house 6 years ago has gained £150K *and* had all the cost met by renting it out.

It's all about capital gains. Always has been? :unsure:

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The rents achieved are at levels first seen 6 years ago and might be softening after a dip/recovery when the crunch arrived:

Wonder what Brian Hall would make of this? :D

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Yes, but you are missing the point that somebody who bought a 300K house 6 years ago has gained £150K *and* had all the cost met by renting it out.

It's all about capital gains. Always has been? :unsure:

Careful with the use of past tense, it's only paper profits unless cashed out. You are right though, BTL is about capital gains only, for those that buy with gross yields under 8%(?) or so. The chances of repeating the paper-profit trick in the next six years seems slim, though, that's bring gross yields maybe under 2%, and net yields must be pretty much negative already.

How low can yields go?

Wonder what Brian Hall would make of this? :D

Ha, Mr Hall would be amazed. The rental index displayed on the graph should have risen from 100 in Jan 2005 to 165 today in Brianworld's 6% nominal rental growth environment. Instead, it languishes at around 130. I guess that means it's ready to shoot right up.

Interestingly, much of this data was freely available prior to Mr Hall constructing his model. Given this is one of the strongest rental markets in the UK, and it is showing a huge (low side) divergence with his precious model, you'd think that it was time to seriously question it.

edit clarity

Edited by cheeznbreed

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Ha, Mr Hall would be amazed.

He seemed to have younger people's best interests at heart, buying versus renting over 25 years, with his model, but I think it missed out a few important real-world considerations.

BTW, here is a new article from him. August 2013.

He had 'modelled' London 1988-2013 for returns, but there's a big gap in it for 1992-96.

His model hit an outside-context-problem many investors can't fathom (falling prices) and so the model didn't work for 1992-96, because of the negative equity his geared investors would have in that situation.

I don't understand how he's come to the yield used in the model (historic or current as per some quoted average by a range of sources?).

http://www.mortgages...tory-brian-hall

It would be interesting to factor in affordability. I imagine that the ratio of income to rents in the capital is higher and the risks of a rental yield correction are greater.

What was really apparent was the boom and bust potential of geared investing, irrespective of the region, and the speed with which things can turn.

Edited by Venger

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Property yields

As interest rates have tended towards zero, asset (property) yields have headed lower just like government bond yields.

2nsqe06.png

( Gross )

John-D-Wood-yields-Jan-2013.png

Assuming the market is fairly efficient after costs BTL yields are bugger all and tend more towards bugger all. Isn't this a natural brake on house price inflation (based on yields and BTL).

Prices cannot go any higher by lowering interest rates, you would need to relax lending standards (further).

The end of BTL is here unless prices fall. :unsure:

of9b.jpg

k0it.jpg

Source: [PDF] http://www.johndwood.co.uk/r/surveyors/pdfs/yields/Gross-Yields-for-Prime-Central-London.pdf

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Prices cannot go any higher by lowering interest rates

Think of QE as a monetary easing at the xero bound. i.e. the equivalent of cutting rates when they're > 0.

Not to mention FLS, HTB and whatever Osborne comes up with next. Miras?? cuts in stamp duty??

They're only just getting warmed up........

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Think of QE as a monetary easing at the xero bound. i.e. the equivalent of cutting rates when they're > 0.

Not to mention FLS, HTB and whatever Osborne comes up with next. Miras?? cuts in stamp duty??

They're only just getting warmed up........

Some would love that, even a few people on the forum, and have indeed positioned themselves for it. Landlords buying up more homes since March, sometimes at very high prices.

There's a limit to whatever Gov offers to stimulate prices. It requires buyers prepared to take up the offers. There are two sides to the lending equation. People tend to forget that. What borrowers are prepared to borrow, and prices they are prepared to pay.

Regardless of more schemes to help with 'affordability'. The asking prices of houses are scary for many non-owners or those seeking to trade up.

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He seemed to have younger people's best interests at heart, buying versus renting over 25 years, with his model, but I think it missed out a few important real-world considerations.

Is that the guy that posted those crazy models on here a while back?

Just bizarre, silly nonsense.

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