radoc Posted August 2, 2008 Share Posted August 2, 2008 How much is my house worth? well it depends on location, number of bedrooms, supply and demand, availability of mortgages , lack of buyers etc etc. er... no Its worth how much I can rent it for and what are long term interest rates going to be. So take my own house, lets say it was valued at £330000 . Its now dropped 10% to 300000. I want to move do I sell at any price? It will rent for about 1150-1250/month. I'll ignore tax and expenses. So at say 5% interest my rent will fund a mortgage (interest only) of £300000. At 6% I`m loosing 3000/year = 1% of the value of the house. Obviously I'm ignoring lots of detail but any offers much below 300000 I will reject. Also rents should rise with inflation. Please tell me where my logic is flawed. ( runs for cover) PS It is different this time - because of the internet we know what's going on so the HPC is going to be sharper and shorter once mortgages become available. Quote Link to comment Share on other sites More sharing options...
Jason Posted August 2, 2008 Share Posted August 2, 2008 If you're basing house valuations on rental income you indeed need to factor in other costs as you ignore. Secondly, to compare with a bank account is fine, but you need to factor in risk - i.e. what if you get a void? what if your place is trashed? etc etc If you say 15% max fall based on the above (I would say more like 30%) then why would someone buy if prices are still falling? Sentiment has a huge effect, such as this has pushed up prices too high (based on rental income) and it's most likely going to do the same in the opposit direction! Quote Link to comment Share on other sites More sharing options...
Potwalloper Posted August 2, 2008 Share Posted August 2, 2008 Please tell me where my logic is flawed. ( runs for cover) I'll ignore tax and expenses. These could approach or exceed half your rental gross income. Quote Link to comment Share on other sites More sharing options...
warpig Posted August 2, 2008 Share Posted August 2, 2008 TROLL How much is my house worth? well it depends on location, number of bedrooms, supply and demand, availability of mortgages , lack of buyers etc etc. er... noIts worth how much I can rent it for and what are long term interest rates going to be. So take my own house, lets say it was valued at £330000 . Its now dropped 10% to 300000. I want to move do I sell at any price? It will rent for about 1150-1250/month. I'll ignore tax and expenses. So at say 5% interest my rent will fund a mortgage (interest only) of £300000. At 6% I`m loosing 3000/year = 1% of the value of the house. Obviously I'm ignoring lots of detail but any offers much below 300000 I will reject. Also rents should rise with inflation. Please tell me where my logic is flawed. ( runs for cover) PS It is different this time - because of the internet we know what's going on so the HPC is going to be sharper and shorter once mortgages become available. Quote Link to comment Share on other sites More sharing options...
Harry Monk Posted August 2, 2008 Share Posted August 2, 2008 PS It is different this time - because of the internet we know what's going on so the HPC is going to be sharper and shorter once mortgages become available. "The danger does not lie in the belief itself. It lies in the unspoken assumption that usually follows from the belief: "Because it's different this time, I can flout all the rules that applied in previous similar situations". This blinds you to overvaluation" Souce, incademy.com- Fifteen favourite fallacies. Quote Link to comment Share on other sites More sharing options...
Jason Posted August 2, 2008 Share Posted August 2, 2008 I wonder if radoc come back to debate the points we have made? Let see... Quote Link to comment Share on other sites More sharing options...
thod Posted August 2, 2008 Share Posted August 2, 2008 A house is a depreciating asset. For it maintain its value you must constantly maintain it. If for example you replace the kitchen every 15 years @ £15k then you must factor in 1k a year for that. Then there is wear and tear on carpets, roof maintenance, replacement windows, painting etc. So the big mistake you are making is assuming that there is zero costs in ownership. Quote Link to comment Share on other sites More sharing options...
WaitingToUpsize Posted August 2, 2008 Share Posted August 2, 2008 So take my own house, lets say it was valued at £330000 . Its now dropped 10% to 300000. I want to move do I sell at any price? It will rent for about 1150-1250/month. I'll ignore tax and expenses. So at say 5% interest my rent will fund a mortgage (interest only) of £300000. At 6% I`m loosing 3000/year = 1% of the value of the house. Obviously I'm ignoring lots of detail but any offers much below 300000 I will reject. Also rents should rise with inflation. You are right - for a owner occupier if mortgage rates are 5% your house will be valued b/w 276-300k. - for a BTL investor it will be much less as he will add in costs, void periods, etc. - mortgage rates currently are around 6.5%, though i my opinion they should come down in the longer run - rents need not rise with inflation, depends on the economy and again supply and demand. - the advertised rates are always slightly higher than actual rates, so are you sure 1150-1250/month is a realistic number Quote Link to comment Share on other sites More sharing options...
InternationalRockSuperstar Posted August 2, 2008 Share Posted August 2, 2008 (edited) Edit: your logic is flawed largely because: 1) you seem to be ignoring inflation which is currently running at more than 20% 2) you assume that rents will keep up with inflation. Well they aren't at the moment and they're certainly not going to in the future. All the Poles are f*cking off, meanwhile the domestic birth rate is only ~1.3. Edited August 2, 2008 by InternationalRockSuperstar Quote Link to comment Share on other sites More sharing options...
tuggybear Posted August 2, 2008 Share Posted August 2, 2008 You can price your house at what you want. If it's above market price usually it will not sell. If your in no rush to sell and can wait 5-10 years for market price to come back up, then no problem. Many people are being force to sell due to higher living costs etc., if they need to sell they will have to be the 'cheapest in the street'. this lowers the 'MARKET' value. It can be seen clearly in my area, marketed 2007 detached 3 beds at a asking price which now 4 bed detached are valued at. People in denial! Quote Link to comment Share on other sites More sharing options...
RJG18 Posted August 2, 2008 Share Posted August 2, 2008 So take my own house, lets say it was valued at £330000... . ...I don't see how that really has any relevance... Its now dropped 10% to 300000. I want to move do I sell at any price? It will rent for about 1150-1250/month. I'll ignore tax and expenses. So at say 5% interest my rent will fund a mortgage (interest only) of £300000. At 6% I`m loosing 3000/year = 1% of the value of the house. Obviously I'm ignoring lots of detail but any offers much below 300000 I will reject. ... I'm also rejecting any offer below £100,000 for some old patio furniture I'm trying to sell (so far, no takers). My refusal to mark my price to market has so far done nothing to "lock-in" my over-valuation... Also rents should rise with inflation. Please tell me where my logic is flawed. ( runs for cover) PS It is different this time - because of the internet we know what's going on so the HPC is going to be sharper and shorter once mortgages become available. You've made the classic mistake of starting with a recent peak valuation (in this case £330k), and adjusting that up or down by a percentage that you feel emotionally comfortable with in order to reach your new predicted valuation. The correct way to assess value is to start from a valuation of £0.00, and then add value based on fundamentals in order to reach a correct valuation. This will also help you to calculate how over-valued the asset had become, and by how much it would be likely to fall. Mortgage repayments on a £330,000 would currently be around £2500 per month. Assuming someone can afford to pay about 30-35% of their takehome salary on mortgage repayments, then your house would be affordable to someone earning around £145,000 a year. Or the top fraction of a percentage point of all UK earners. Does your house fall into this demographic range? Is it one of the best properties in the country (based on location, size, features, etc, etc?) I suspect not. Looking at your peak valuation, it is somewhere just above mid point (maybe 20% above). An equivalent demographic salary range would probably be someone earning around £35,000 to £45,000 a year. People in this range take home around £2400 a month. They could afford to spend no more than about £800 - £1000 a month on mortgage repayments. This would mean they could afford to buy your house off you for around £130,000. (Just over 60% below your peak valuation). Sound harsh? No. People need to be able to afford to buy or rent a property out of their earnings, and prices will adjust accordingly to meet this. Everything else is just noise. Quote Link to comment Share on other sites More sharing options...
Elizabeth Posted August 2, 2008 Share Posted August 2, 2008 (edited) How much is my house worth? well it depends on location, number of bedrooms, supply and demand, availability of mortgages , lack of buyers etc etc. er... noIts worth how much I can rent it for and what are long term interest rates going to be. So take my own house, lets say it was valued at £330000 . Its now dropped 10% to 300000. I want to move do I sell at any price? It will rent for about 1150-1250/month. I'll ignore tax and expenses. So at say 5% interest my rent will fund a mortgage (interest only) of £300000. At 6% I`m loosing 3000/year = 1% of the value of the house. Obviously I'm ignoring lots of detail but any offers much below 300000 I will reject. Also rents should rise with inflation. Please tell me where my logic is flawed. ( runs for cover) PS It is different this time - because of the internet we know what's going on so the HPC is going to be sharper and shorter once mortgages become available. So long as you keep up the morgage, don't go into arrears, etc. So you are down to 288K house value once you have taken the losses on the morgage (and once I have factored in 15% voids and upkeep I get 1,000 per month of income.) Here's an alternative scenario. Sell your house now for 270K (reduced by a further 10%) Put your money in the bank at a basic interest rate of 6% Assuming you are a higher rate tax payer what will be in your bank at the end of the period will be 289.7K (that 1.7K more than if you rented it out and had a morgage or 6%) If you are a lower rate taxpayer or you can put it in a lower rate taxpayer's bank account (does the wife work?) the amount will be 296.5K you are now 12K up on holding on, far less hassle and far less worries (as houses quite potentially go through the floor on your assumptions - its a risk based on your assumptions. Not a sure thing. "I know you think you know but you only think, too much of course".) [*]Sell the house mate, cut your losses and get on with your life. Stop being such an egotistical twizler and spend some time with the kids (if you've got them. Otherwise get a dog!) Edited for clarity. Edited August 2, 2008 by Elizabeth Quote Link to comment Share on other sites More sharing options...
?...! Posted August 2, 2008 Share Posted August 2, 2008 A house is a depreciating asset. For it maintain its value you must constantly maintain it. If for example you replace the kitchen every 15 years @ £15k then you must factor in 1k a year for that. Then there is wear and tear on carpets, roof maintenance, replacement windows, painting etc. So the big mistake you are making is assuming that there is zero costs in ownership. Exactly, it's not a bond is it. To invest in property is to invest in every business activity and individual within 20 miles. To invest in property is to assume that the immediate locality will enjoy either a consumption or production boom (any kind of boom that increases the amount of capital flowing through the area) without having to take the risk of guessing which businesses are going to succeed. However property is an expensive asset to hold, so much so that under benign economic conditions property is a depreciating asset. Quote Link to comment Share on other sites More sharing options...
'Bart' Posted August 2, 2008 Share Posted August 2, 2008 so the HPC is going to be sharper and shorter once mortgages become available. Can you tell me when that will be so I can put it in my diary. Quote Link to comment Share on other sites More sharing options...
Sledgehead Posted August 2, 2008 Share Posted August 2, 2008 How much is my house worth? well it depends on location, number of bedrooms, supply and demand, availability of mortgages , lack of buyers etc etc. er... noIts worth how much I can rent it for and what are long term interest rates going to be. So take my own house, lets say it was valued at £330000 . Its now dropped 10% to 300000. I want to move do I sell at any price? It will rent for about 1150-1250/month. I'll ignore tax and expenses. So at say 5% interest my rent will fund a mortgage (interest only) of £300000. At 6% I`m loosing 3000/year = 1% of the value of the house. Obviously I'm ignoring lots of detail but any offers much below 300000 I will reject. Also rents should rise with inflation. Please tell me where my logic is flawed. ( runs for cover) PS It is different this time - because of the internet we know what's going on so the HPC is going to be sharper and shorter once mortgages become available. Please refer to earlier post (almost any over the past 4 years will do) Quote Link to comment Share on other sites More sharing options...
ralphmalph Posted August 2, 2008 Share Posted August 2, 2008 The key is at what point the market reachs the level where negative equity comes into effect. It is just human nature that people will not sell something that they believe is an investment for there future for less than they paid for it. So if the price reductions we are seeing now is just taking one years hpi froth off the market and people are still in profit on the sale they can use this profit to pay to upgrade their house and pay robber browns stamp duty. So at the moment there is a lot of property on the market that can be reduced in price because the onwers still have equity after such a long period of growth. With employment still at high levels compared to the last housing crash I think that there is a limit to what non distressed vendors will reduce, they may think 10% off is nothing after the house has doubled but they will soon realise that 30% of a house that has doubled in value may not leave enough profit to fund their next house and hence they will stay put. So employment levels are key, if we get large scale unemployment then we could get the mother of all house price crashes but if employment remains relatively high then it could be that we see 10% to 20% drop in house prices as people just wait for them to start rising again due to the effects of inflation even if this does take 10 years. Quote Link to comment Share on other sites More sharing options...
Dopamine Posted August 2, 2008 Share Posted August 2, 2008 At 6% I`m loosing 3000/year = http://loseloose.com/ Quote Link to comment Share on other sites More sharing options...
Sledgehead Posted August 2, 2008 Share Posted August 2, 2008 (edited) Besides cost of ownership, which I and others have detailed ad nauseum over the years, the OP should also bear in mind the riskiness of property. If he wants some examples of how property can be devalued other than by a general market crash, he might do worse than read my "another property enron" thread. The OP must realise that, as with bonds, the larger the risk, the higher the yield must be to reward an investor for assuming said risk. Hence you'll want to be yielding in excess of interest rates by some margin before you even start addding to that yield for voids, insurance, council tax, conveyancing costs, maintenance etc. Edited August 2, 2008 by Sledgehead Quote Link to comment Share on other sites More sharing options...
Layman Posted August 2, 2008 Share Posted August 2, 2008 So you feel that prices scale linearly with rents? OK, that's fine. The direction is still down - Rents across London have started to fall by as much as 20 per cent as a glut of supply forces landlords to cut prices Quote Link to comment Share on other sites More sharing options...
Bloo Loo Posted August 2, 2008 Share Posted August 2, 2008 The key is at what point the market reachs the level where negative equity comes into effect. It is just human nature that people will not sell something that they believe is an investment for there future for less than they paid for it. So if the price reductions we are seeing now is just taking one years hpi froth off the market and people are still in profit on the sale they can use this profit to pay to upgrade their house and pay robber browns stamp duty.So at the moment there is a lot of property on the market that can be reduced in price because the onwers still have equity after such a long period of growth. With employment still at high levels compared to the last housing crash I think that there is a limit to what non distressed vendors will reduce, they may think 10% off is nothing after the house has doubled but they will soon realise that 30% of a house that has doubled in value may not leave enough profit to fund their next house and hence they will stay put. So employment levels are key, if we get large scale unemployment then we could get the mother of all house price crashes but if employment remains relatively high then it could be that we see 10% to 20% drop in house prices as people just wait for them to start rising again due to the effects of inflation even if this does take 10 years. I fail to see where Negative equity comes in to support prices. people enter the market for a variety of reason. Some want to move, some want to sell an inheritance, some want a divorce. In this recession, many more will want to sell to get out of unpayable debt. These are called forced sellers. Sadly, as we have been in a bubble, its lack of buyers that has called the top. It will be buyers that determine prices, not negative equity. Quote Link to comment Share on other sites More sharing options...
thecrashingisles Posted August 2, 2008 Share Posted August 2, 2008 Can you tell me when that will be so I can put it in my diary. I don't want to be another page in your diary http://youtube.com/watch?v=R_kzhvYZtQc Quote Link to comment Share on other sites More sharing options...
Errol Posted August 2, 2008 Share Posted August 2, 2008 Come back to this thread in a year or so when house prices have dropped 50-60%. Oh how we'll laugh ... Quote Link to comment Share on other sites More sharing options...
joey Posted August 2, 2008 Share Posted August 2, 2008 How much is my house worth? well it depends on location, number of bedrooms, supply and demand, availability of mortgages , lack of buyers etc etc. er... no Just deduct 20% to 30% of the valued price and thus deduct 1K to 2K a week from thereon. Loads of Supply of property, no demand and very little respite in the mortgage markets. First Time Buyers (FTBs) are just sitting back and watching prices drop faster and bigger than they have ever done before. Why buy now when you can get upto 50K to 80K off a place next year . The Property MYTH has been BUSTED and shrinking fast Quote Link to comment Share on other sites More sharing options...
Elizabeth Posted August 2, 2008 Share Posted August 2, 2008 I fail to see where Negative equity comes in to support prices.people enter the market for a variety of reason. Some want to move, some want to sell an inheritance, some want a divorce. In this recession, many more will want to sell to get out of unpayable debt. These are called forced sellers. Sadly, as we have been in a bubble, its lack of buyers that has called the top. It will be buyers that determine prices, not negative equity. I think NE will influence some individuals now while people are still debating the falls, but it is an illusory quality - in the end you are totally right and those with equity still in the property now may well end up being the biggest losers, because they will have to justify there failure to predict the market before they get through the bargaining stage. Quote Link to comment Share on other sites More sharing options...
Converted Lurker Posted August 2, 2008 Share Posted August 2, 2008 How much is my house worth? well it depends on location, number of bedrooms, supply and demand, availability of mortgages , lack of buyers etc etc. er... noIts worth how much I can rent it for and what are long term interest rates going to be. So take my own house, lets say it was valued at £330000 . Its now dropped 10% to 300000. I want to move do I sell at any price? It will rent for about 1150-1250/month. I'll ignore tax and expenses. So at say 5% interest my rent will fund a mortgage (interest only) of £300000. At 6% I`m loosing 3000/year = 1% of the value of the house. Obviously I'm ignoring lots of detail but any offers much below 300000 I will reject. Also rents should rise with inflation. Please tell me where my logic is flawed. ( runs for cover) PS It is different this time - because of the internet we know what's going on so the HPC is going to be sharper and shorter once mortgages become available. Not sure what point you're trying to make TBH..anyhow, I love this argument of "well I'll rent it out to cover my mortgage". Stripping out London, where you're not if it's worth only 300k, a 4 bed semi nationally gets on average 800 quid a month a 3 bed 600. Now here's the rub, folk look for the size of house, location to work, etc when renting, they generally don't think "oh that's nicer lets pay 400 quid a month extra for it..." after all it's dead money isn't it? BTW how does any of ths shite you posted support your thread title? Quote Link to comment Share on other sites More sharing options...
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