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This Is What We Are Up Against

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Having a chat with a colleague at work today. He seems reasonably bright, well informed and 'savvy'. We have discussed financial issues before ( mostly stocks and shares ) and he seemed well informed, told me he reads the FT. Anyway conversation turned to property and how he has 'done the house up' and its now worth X million pounds - yawn yawn - yes of course it is. Then he started telling me how he was planning on buying a flat for his 15 year old son. Conversation went something like this:

Me: Do you have any idea what the long term trend ratio of av earnings to av house price is ?

Mate: No

Me: Its 3.5, what do you think the current ratio is ?

Mate: 5'ish.

Me: No, nationally its between 7 and 10 depending on whose data you look at and locally its over 9.

Mate: Oh - followed by bemused silence.

Me: Do you realise that for the price of a crappy studio flat here you could buy a 6 bedroom detatched house in parts of France.

Mate: Yeah but I dont want to live in France do I.

Me: No, but I'm just trying to point out how laughably over- priced UK property has become.

Mate: Silence

ME: Do you know how many times the market has crashed in real terms since the war ?

Mate: Once and that was because interest rates hit 15% !!

Me: No, its at least three times so far.

Mate: Yeah but in the long term ......... yadaa yadda yadda

Me: Got to go .......

The point is this man is willing to borrow a couple of hundred thousand to buy a flat for his 15 yesar old son but knows nothing about the property market except, presumably, what his mates tell him and what he sees on T.V. I think there are many more like him too.

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Having a chat with a colleague at work today. He seems reasonably bright, well informed and 'savvy'. We have discussed financial issues before ( mostly stocks and shares ) and he seemed well informed, told me he reads the FT. Anyway conversation turned to property and how he has 'done the house up' and its now worth X million pounds - yawn yawn - yes of course it is. Then he started telling me how he was planning on buying a flat for his 15 year old son. Conversation went something like this:

Me: Do you have any idea what the long term trend ratio of av earnings to av house price is ?

Mate: No

Me: Its 3.5, what do you think the current ratio is ?

Mate: 5'ish.

Me: No, nationally its between 7 and 10 depending on whose data you look at and locally its over 9.

Mate: Oh - followed by bemused silence.

Me: Do you realise that for the price of a crappy studio flat here you could buy a 6 bedroom detatched house in parts of France.

Mate: Yeah but I dont want to live in France do I.

Me: No, but I'm just trying to point out how laughably over- priced UK property has become.

Mate: Silence

ME: Do you know how many times the market has crashed in real terms since the war ?

Mate: Once and that was because interest rates hit 15% !!

Me: No, its at least three times so far.

Mate: Yeah but in the long term ......... yadaa yadda yadda

Me: Got to go .......

The point is this man is willing to borrow a couple of hundred thousand to buy a flat for his 15 yesar old son but knows nothing about the property market except, presumably, what his mates tell him and what he sees on T.V. I think there are many more like him too.

Yes, but it is this same irrationality that exagerates upswings as well as falls. When sentiment turns and becomes enthrenched he will negative for reasons he dosnt realy understand.

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I know how you feel but why help him out?

Try encouraging him to buy 2 flats and another house.

Prices can only go up and soon we'll be at a ratio of 20 then we'll plateau for a while.

You can then have fun watching him squirm as the impossible happens :)

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I know how you feel but why help him out?

Try encouraging him to buy 2 flats and another house.

Prices can only go up and soon we'll be at a ratio of 20 then we'll plateau for a while.

You can then have fun watching him squirm as the impossible happens :)

God you're EVIL. I love it :P

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God you're EVIL. I love it :P

Not evil ....hes like me. if people sucumb to this stupidity then they deserve all they get.

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The point is this man is willing to borrow a couple of hundred thousand to buy a flat for his 15 yesar old son but knows nothing about the property market except, presumably, what his mates tell him and what he sees on T.V. I think there are many more like him too.

In a way he has more evidence that he is right than you. In his mind he has 'made' substantial gains out of property in the last x years. Now he's worried for his son's future and putting emotions first. He's probably reasoned that he can offset any shortfalls against his current home equity, perhaps? I'm afraid that the Americans, British, Spanish, Aussies, Kiwis etc. have become a bunch of house gamblers. Trouble is nobody knows what it's like to lose the bet; since the last 80s, early 90s that is. If it's any consolation I've had similar conversations with family and friends. Trouble is they've been proved right..... so far. The usual response is 'rent is dead money' or 'Britain is an island'.

Edited by Xurbia

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The point is this man is willing to borrow a couple of hundred thousand to buy a flat for his 15 yesar old son but knows nothing about the property market except, presumably, what his mates tell him and what he sees on T.V. I think there are many more like him too.

We have been in a boom now for about eight years. It's about 13 years since the last crash ended. I think that many people have been lulled into a mindset in which they believe that 'we will always be in a boom; there will always be more money to borrow; interest rates will never rise above 6%; the government (BOE) will always step in to bail out the housing market; there will always be jobs a plenty; house prices will always rise at 10%+ p.a.

People up to the age of 30 have never experienced a recession during their working lives. Many don't know what it's like to be out of work. Debt has become normalised (at least for now). There is now a mode of thinking in which people are believing that all you need to do is 'get on the housing ladder'. Once you are on, the price will go up and income can be supplemented by MEW.

In the place where I work, BTL has become a kind of mini craze. Some people have done well out of it over the past few years. Now others are moving in (or already moved in) believing that the next few years will be like the last. There is no listening to reason; or studying of market cycles; or developments on the world economy; or looking at tried and tested indicators such as the incomes to HP ratio or rent yield to mortgage payments. Just a feeling that all is well in the world and that this will indefinitely continue.

However, I sense that it's five to twelve and the clock is ticking.

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We have been in a boom now for about eight years. It's about 13 years since the last crash ended. I think that many people have been lulled into a mindset in which they believe that 'we will always be in a boom; there will always be more money to borrow; interest rates will never rise above 6%; the government (BOE) will always step in to bail out the housing market; there will always be jobs a plenty; house prices will always rise at 10%+ p.a.

Part of the problem is that all the losses of the last crash have been completely made good plus some....i.e. even if one had bought at the peak of the last boom in '88 and held, they would be okay now.......this gives some the reassurance that property will always be okay "in the long run" and even if there is a downturn then so long as they weather the storm all will be good in the end. It's this mindset which has encouraged people to still keep buying investment properties over the last 12 mths.

Trouble is I'm not convinced we will ever see prices this high again (in real terms)......I feel we could be looking at a Japan style crash last many years.

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We have been in a boom now for about eight years. It's about 13 years since the last crash ended. I think that many people have been lulled into a mindset in which they believe that 'we will always be in a boom; there will always be more money to borrow; interest rates will never rise above 6%; the government (BOE) will always step in to bail out the housing market; there will always be jobs a plenty; house prices will always rise at 10%+ p.a.

People up to the age of 30 have never experienced a recession during their working lives. Many don't know what it's like to be out of work. Debt has become normalised (at least for now). There is now a mode of thinking in which people are believing that all you need to do is 'get on the housing ladder'. Once you are on, the price will go up and income can be supplemented by MEW.

In the place where I work, BTL has become a kind of mini craze. Some people have done well out of it over the past few years. Now others are moving in (or already moved in) believing that the next few years will be like the last. There is no listening to reason; or studying of market cycles; or developments on the world economy; or looking at tried and tested indicators such as the incomes to HP ratio or rent yield to mortgage payments. Just a feeling that all is well in the world and that this will indefinitely continue.

However, I sense that it's five to twelve and the clock is ticking.

This is why we get laughed at,the evidence to date does go against what we're saying. I don't really bother much speaking about it anymore, my hubbie and family are on the same page thank god, but most of mates think it's just me on the menopause and I'll get over it. They're all buying stuff like there is no tommorow and think I'm a bit odd for spending below my means.

My kids have never seen inflation but when the student busfares went from 50p to 70p my eldest daughter was ready to riot in the streets, I think a lot of youngsters are going to be very, very shocked in the near future. Sometimes I feel like Noah :blink:

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Guest Skint Academic
We have been in a boom now for about eight years. It's about 13 years since the last crash ended. I think that many people have been lulled into a mindset in which they believe that 'we will always be in a boom ... there will always be jobs a plenty

People up to the age of 30 have never experienced a recession during their working lives. Many don't know what it's like to be out of work. Debt has become normalised (at least for now).

I agree. I find it amazing how quickly people take things for granted. What people are doing now is the economic equivalent of tailgating. You drive up to someone's bumper on a motorway at 70mph assuming that they are going to keep a steady course. Of course if they have to jump on the brakes or slow down then there will be a crash. People take on debts that need servicing every month under the assumption that they will always have a job. The moment they lose their jobs and are out of work for more than a few months (i.e. in a recession) then the trouble starts.

I can't find the link but I do remember a few years ago hearing how many people were only a few pay packets away from bankruptcy. But saying that, the previous tenant of the current place that we're renting was given thousands of pounds of credit and has done a runner. It's really shown us how long it takes for the companies to try and catch up with you. Almost a year later we're still getting phone calls and letters for her from debt collectors.

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Part of the problem is that all the losses of the last crash have been completely made good plus some....i.e. even if one had bought at the peak of the last boom in '88 and held, they would be okay now.......this gives some the reassurance that property will always be okay "in the long run" and even if there is a downturn then so long as they weather the storm all will be good in the end. It's this mindset which has encouraged people to still keep buying investment properties over the last 12 mths.

Trouble is I'm not convinced we will ever see prices this high again (in real terms)......I feel we could be looking at a Japan style crash last many years.

I am beginning to think the same thing. There is so much credit / debt. None of this money is actually representative of anything 'real'. The Hedge funds / CDO game has generated a derivative market that is thought to be (no body really knows to the true figure apparently) SEVEN time total global GDP! :o

I think we will see an inflationary 'blip' the triggers interest rates and hence market risk to increase (this process is already undetway.

Then we will see a sharp deflationary impact as all the banks call in the loans and find that there is nothing of value behind them . This will mean that much of the money recently 'created' will get destoried in write off's. Asset price will, at least in the short term, collapse and bingo deflation.

Remember Japan in the 1990's.

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you can lead a horse to water but you can't make him drink

(substitute horse for donkey!)

No, ASS.

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Colleague and I literally told another colleague when he told us he wanted to buy a house that we would wait until he got repossessed and then would buy cheap. The guy still bought. :lol:

Edited by Goldfinger

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Re original topic:

Nothing but nothing can penetrate the curent dogma, nothing ever, no matter what the subject, no amount of reasoning, logic or common sence will win this argument, and when it does fall apart, whos fault will it be? yours of course, you said it it would fall apart, remember?. The vast majority of the population, no matter how educated can ever see themselves in a radicaly different situation to what they are now in, this is repeated throughout history over and over, only a few ever see this and sometimes its like being on the other side of the matrix, perhaps its a built in primeval self defence mechanism, sort of like sheep happily grazing when the truck turns up with ' Abatoir, sheep butchers' plastered on its side.

ps, just out of interest, who belives they will be happy motoring in 10 years or less time??

We have been in a boom now for about eight years. It's about 13 years since the last crash ended. I think that many people have been lulled into a mindset in which they believe that 'we will always be in a boom; there will always be more money to borrow; interest rates will never rise above 6%; the government (BOE) will always step in to bail out the housing market; there will always be jobs a plenty; house prices will always rise at 10%+ p.a.

People up to the age of 30 have never experienced a recession during their working lives. Many don't know what it's like to be out of work. Debt has become normalised (at least for now). There is now a mode of thinking in which people are believing that all you need to do is 'get on the housing ladder'. Once you are on, the price will go up and income can be supplemented by MEW.

In the place where I work, BTL has become a kind of mini craze. Some people have done well out of it over the past few years. Now others are moving in (or already moved in) believing that the next few years will be like the last. There is no listening to reason; or studying of market cycles; or developments on the world economy; or looking at tried and tested indicators such as the incomes to HP ratio or rent yield to mortgage payments. Just a feeling that all is well in the world and that this will indefinitely continue.

However, I sense that it's five to twelve and the clock is ticking.

Agreed, I would go as far to say that hardly anyone under the age of nearly 40 has had to seriously worry about a recession ever. I left scholl in the mid 70's and remember nothing but recessions for the first 15 years or so of my working life, lots of redundancies and never ending high interest rates. Suspect this is still my mindset as havent taken real advantage of the last 10 years or so of boom., on the other hand Ive got lots of savings and am in a prime position to benefit when it all falls appart and the current set of smiles are wiped of current set of smarmy faces.

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Well not wanting to point out the obvious but his son will have a flat to live in - wish my dad could have afforded that!

If it goes down like last time he won't have a shoebox to live in, there was council housing last time or bed and breakfast in blackpool. :o

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People take on debts that need servicing every month under the assumption that they will always have a job. The moment they lose their jobs and are out of work for more than a few months (i.e. in a recession) then the trouble starts.

I can't find the link but I do remember a few years ago hearing how many people were only a few pay packets away from bankruptcy.

Thing is even in the current buoyant economy many professional people will not be able to find another job with the same or better pay, just like that if they where made redundant or didn't have a fixed duration contract renewed. Rather a between jobs period of three to six months is more realistic I feel. Now in a full blown recession they will easily end up being between jobs for a year to eighteen months. Very, very few people will have the resources to last longer than a year between jobs.

I know a number of people that have undergone financial distress (big unauthorised overdraft, missed mortgage payment etc..) just by changing job from an employer that pays in advance to one that pays in arrear.

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If it goes down like last time he won't have a shoebox to live in, there was council housing last time or bed and breakfast in blackpool. :o

I like you wouldn't encourage my kids to buy a shoebox prison at todays prices, IMO quality of life far outweighs the heard mentality that ever increasing property indoctrination that makes us all rich and happy.

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Well, I can wholeheartedly agree with the original posters sentiment, Having been a landlord for yonks, (fair and law abiding I hasten to add) and not BTL, I also hold down a reasonable full time job....from my point of view there are always positives to the way these fools think.

I, yesterday sold one of my houses to a buy to let idiot ( subject to contract of course) now, I believe like many of you the market is there, at the top, ready to reverse....I'm 48, old enough to have seen, been through the last fall out and benefit the other side, like many of you will

Here's an example of a BTLer I work with, he's just, with his brother brought two Buy To Let properties in Gloucester ( hope he's not flooded) I tried to explain to him the positives of being the landlord of that house from 1999, I bought the house for £66,000 and have just sold for £180,000, I'll keep it simplistic and not include tax, also for the time I had it, it was rented out at around 10k a year, good return huh? what I was trying to explain to him was that, I've benefited, if someone was to buy it for 180k now, rent it out for between 800 and 1100, depending on your management options you could possibly make around £150 a month after fees, mortgage and general upkeep, what I was really trying to say is, I'm the one walking off with the loot, the guy who buys it now is buying such a pony investment and if prices fall and rates go higher, my money is in the bank and his is being taken back by the bank, why can't they see it!!!Maybe this will give you a clue to his way of thinking, having had my ex rental house on the market for nearly 4 weeks, I called the agent and asked what's happening, he said plenty of viewing but that bathroom is pony ( you know the green one lol) and you should be prepared to take offers, which I did, I'm not a greedy man, there's no mortgage on it, I took a 10k hit on it, but then maybe it was 10k overpriced lol, anyway, when i explained to my BTLer workmate what the EA had said about the bathroom, he said, well whack a new one in for £500, put £1000 on the price and I bet the prices will have gone up by then as well!!!!!......on that not I walked off.

The clock continues to tick :ph34r:

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I like you wouldn't encourage my kids to buy a shoebox prison at todays prices, IMO quality of life far outweighs the heard mentality that ever increasing property indoctrination that makes us all rich and happy.

Right on there, I would rather have some fun with my kids than granite worktops. The photographs don't seem to bring on the same nostalgia. :lol:

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I know how you feel but why help him out?

Try encouraging him to buy 2 flats and another house.

Prices can only go up and soon we'll be at a ratio of 20 then we'll plateau for a while.

You can then have fun watching him squirm as the impossible happens :)

:lol: yeh man- i agree

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