Monday, September 29, 2008

‘You can’t go wrong with bricks and mortar.’

The most dangerous financial cliché in history

'You can't go wrong with bricks and mortar,' they said. As another UK lender goes under, we're seeing again how how mistaken that is. And despite all the bail-outs, the crisis isn’t over yet. Property prices are still falling, and it will be a long time before they stop.

Posted by damien @ 11:46 AM (998 views)
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2 thoughts on “‘You can’t go wrong with bricks and mortar.’

  • It is relative to the timeframe perspective of investment, ie how long you can afford to commit to such investment. If one was able to commit oneself to property investment for the 30 years, this cliche may well have held good historically without too much of a housing boom and bust in the past. Nowadays, however housing market has been transformed into a toy of the criminally vicious peculators/financiers, reducing property investment to an extraordinarily risky undertaking, thanks to the doubly volatile combination of parameters, namely unstable house prices and fluctuating IR. Just imagine a situation in which the mortgage rate for the house you bought at the grotesquely inflated price at the peak in 2007 will be doubled! The horrendous gearing effect of it! Unfortunately this is not an imaginary situation, but the harshest reality that face hundreds of thousands of so called ‘house owners’ (only for the purpose of property registration, and that subject to the decades of mortgage slavery).

    For the common workers, unless house price is stabilized at say less than three times annual income level (not gross income folks, but net income here: Make no mistake, gross income as the basis of reference cannot mean a thing to evaluate financial feasibility of mortgage repayment), you may not wish to think even for a second about buying a house. If millions start to think this way, God’s invisible hand will after all start to work in this damned market and the house prices will be stabilized at a reasonable equilibrium.

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  • Bricks and mortar have done better than the stock market so far

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