Wednesday, June 30, 2010
Rent v. Buy?
Advantages of owning versus not
1.37.59 in Jonathan Davies can't sleep? Goes to : 1.50 then callers JD - still is greatly impassioned. The other guy talks about non financial stuff - and he keeps quite cool!
Posted by techieman @ 06:54 AM (4808 views)
20 thoughts on “Rent v. Buy?”
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estrader says:
“My house is my pension” – Can someone explain this to me? How do you get your hands on the money?
RC- “the Asylum”
techieman says:
EST – morning! I assume you are taking the proverbial? If not the way it works is you get married buy your first house, stretch yourself more than you can afford, rely on inflation to erode your debt, buy a bigger house using more equity… repeat every 5 to 7 years until retirement age.
See your kids leave and downsize, put the residue into some sort of instrument and live off the proceeds… eh voila. Because, of course, everything goes in a straight line and there are no cycles in play.
JD / FP is always good value :-).
estrader says:
Hi Techie,
That doesn’t make sense though. If house prices are simply rising in line with inflation then you will gain nothing. These imbeciles are talking about ownership offering more than the intrinsic value of a house anyway, then later try and justify ownership by saying their house is their pension, which is nothing but purely financial calculation. Why are the majority of people in the U.K over the age 55 still working if houses were such a fantastic pension? Home-ownerists appeal to the majority who are financially inept.
Another thing, I can’t help noticing that the “rents are rising†phrase is popping up more often now. So, the housing bulls must be losing confidence in the “house prices are rising†argument so now, all the so called fundamentals that leads to house prices rising are now going to cause rents to rise instead and that is why you should buy. What about interest rates rising?
techieman says:
EST – no it does work because of the gearing. Effectivly the only thg Joe Public “know” is borrowing (more than they can afford) and using a small deposit to secure the biggest place. Obviously re gearing i am teaching grandma to suck eggs. The asset appreciates and then can be sold because they all go up yes – but if your 6 bedroom detached in hertfordshire goes up by 60% thats gonna be more than the amount by which the 2 bed cottage in h/shire rises in nominal amount.
Of course it works in reverse.
Interesting area in the S&Ps.!
estrader says:
Hi Techie,
Then that is nothing but financial speculation pure and simple and has nothing whatsoever to do with home ownership at all. They may as well be trading financial derivatives like currencies, gold or anything else that has absolutely nothing whatsoever to do with being able to paint a wall any colour you want!
Yes, the S&P was very exciting to watch. I am still in the shakeout camp but if it remains at this level or below for the rest of the week I may change my opinion and concede I have misread the market. If it breaks 1100 before 1000 then I think it will continue past 1200 and probably move all the way to 1300!
str 2007 says:
For what it’s worth JD was sounding a bit eccentric on that programme I thought.
He may end up being right but he seems to be favcouring long term renting without any real consideration for who pays the rent on retirement.
If he had confined his views to NOW is not the time to buy as prices are still due a correction and then gave and example of say a £25k deposit on a £150k place now.
And then if that deposit was saved for 3 years and the situation in that time frame if prices did drop 30% (ie a 17% deposit would have increased to a 25% deposit attached to a £75k mortgage as opposed to being minus 50k with a £125k mortgage) then he would have gained more credibility.
IMO there is no way long term renting at the rates they are in this country combined with the short tenancy agreements can make for a secure future. In fact I see it more as legalised robbery.
BTW interesting to see your views on a possible retracement of markets before significant falls.
Any opinions on Cable (£/$). Looking on a weekly chart and going back as far as July 2008 when it was just under £2.00/$1.00, it looks as though it’s on the upper level of that downward trendline now ?
str 2007 says:
.Sorry Just under $2.00/£1.00
estrader says:
The arguments the home-ownerists use are never consistent. Their tenet is that anytime is a good time to buy because prices always go up but also try to use the benefit of owning over renting such as redecorating! Well, sorry, this just doesn’t stack up. Not looking at it logically. If house prices never went up then some of the arguments they use would be valid as are the arguments for owning a car over hiring/leasing. Nobody uses the “car prices always go up†in that instance because the reverse is true for used cars, yet most people still prefer to own their own car. Think about this, if you were a bank, would you prefer it if most people rented their house or bought it? Would you want them to borrow as much as possible? I can think of many stocks and commodities that have outperformed Housing by a very wide margin, why aren’t these generous philanthropists telling the public about them?
RC- “amoral team”
quiet guy says:
A highly entertaining post, Techieman.
at 01:55
JD – Jonathan Davis
NM – Nicholas Marr (http://www.homesgofast.com/about_us.php)
NM: Property will go up and you’re getting the benefit of using the property at the same time … this is all scaremongering.
JD: No it’s not. No that’s nonsense. We’ve just had the the biggest economic and financial collapse in history and your calling it scaremongering.
NM: You’re trying to change a culture of aspirational …
JD: No! I’m trying to save people money!
Interesting that JD says he thinks interest rates are set to remain low for the long term at the end.
techieman says:
EST – “They may as well be trading financial derivatives like currencies, gold or anything else that has absolutely nothing whatsoever to do with being able to paint a wall any colour you want!” Yes but the argument is you cant live in a Euro and gain advantageous tax treatment for investing in it.
STR – yes it was actually (looking at it from a impartial perspective) quite ironic when that they asked JD if he were a renter or owner. He always used to talk about his rented property but this time he was very coy about it.[infact it was obvious he’s bought – although maybe Titanic Cap’n may know more]. It made me smile and i am on his side of the argument. But yes he is a bit ranting :-). Basically my view is to step aside while the market falls and get back in to add value when the falls look to be over – its just personally i dont think they are over yet.
As for the markets – i disagree with EST, i think we have a move back up (seems to be manifesting this am!) and then the start of consistent falls down. But of course i may be wrong – yesterday through the day i liquidated about 70% of my short position but am looking to re-short higher up. You can have a look at my spat with HPW the day before if you want (near the end i talk about size).
As for Cable – http://www.housepricecrash.co.uk/newsblog/2010/06/blog-front-page-this-morning-29358.php – 21 to 30.
Btw are you familiar with Harry Dent and his demographic analysis?
estrader says:
Techie, “you cant live in a Euro and gain advantageous tax treatment for investing in it.”
You are mixing up your arguments just like the home-ownerists always do. One is for financial gain and the other is for peace of mind, security and redecorating, you figure out which is which 🙂
About the ES – I didn’t say it is definitely going up. I want the market to crash because I want to buy, but to be honest, I’ve seen this before and it looks like another fakeout. If the market hits 1070 and the media start reporting good news then watch for the 1110 mark. If it breaks above that it will keep going.
str 2007 says:
Hi techiema
Yes I was reading you yesterday.
I hadn’t hear of Harry Dent but copying the following from Wiki, his predictions seem a tad random and dare I say wayward.
(In 2000, based on his forecast that economic growth would continue throughout the 2000s, Dent predicted that the DOW would reach 40k, a prediction which was repeated in his 2004 book. In his book, he also predicted the NASDAQ would reach 13-20k. In late 2006 he revised his forecasts to much lower levels, estimating the Dow would reach 16-18k and the NASDAQ 3-4k. In January 2006, he predicted that the DOW would reach 14-15k by the end of the year. It ended 2006 at 12,463, 11% below the lower end of his prediction. It ended 2007 at 13,264, again significantly lower than Dent’s revised prediction of 15,000 by early 2008. Since then, the Dow crossed 14,000 in late 2007 before retrenching. )
techieman says:
Just to be clear. The START of the rises are manifesting this morning but don’t be surprised to see some volatility this week. As I said I am still 30% short so I am looking for a place to re-short the 70%. Now where that is, that’s the big question as far as I am concerned. I may miss it, or I may get in and get stopped – such are the risks involved. I do think we will try to challenge 10k back on the Dow – but really I need to do some work to fine tune that.
The Harry Dent comment was directed at EST.
techieman says:
Yes i just think the way he (Dent) approaches stuff is interesting. Sorry i wasnt being rude re “directed at EST” that just crossed with yours STR. He has a webinar on his site – i dont have the exact address buiut i just found it interesting.
Re actual numbers for Dow etc, i can tell you that you are just setting yourself up for a fall if you say its going to go to x in so many years. Generally his dates for bull and bear moves – are not too bad.
techieman says:
EST @ 11. Yes i am actually putting their point of view – i don’t share it myself, obviously :-). As for the ES thanks for your clarification.
mark wadsworth says:
“My house is my pension” is usual Home-Owner-Ist cant.
Either it’s your pension (meaning you are going to downsize or MEW, i.e. live off debt) OR it is somewhere to live OR it is “an asset to pass on to your children” but it can’t possibly be all three, can it? But the HOs will advance these arguments simultaneously when opposing anything sensible, like allowing more housing to be built or shifting taxes from incomes to land values.
easybetman says:
@techieman,
Thank you – good one especially the point on housing benefit crowding out private renter. The chap who said housing
was a good investement for the past 50 years was correct, but that was because of the inflating monetory system and
a rigged planning system.
techieman says:
Cheers easybetman – yes you are of course bound to garner support here!
STR – found it! http://www.hsdent.com/free-downloads/
“The great depression ahead”….. yes, it was online before the England Germany game – see he has some psychic abilities!
Crunchy says:
1. estrader said…”My house is my pension” – Can someone explain this to me? How do you get your hands on the money?
Ask Goldman Sachs.
str 2007 says:
Cheers techieman
Interesting. The Dow back upto 11800ish and then crashing back to 3800ish. Crash due in July August.
A very bold claim, but I guess if everything goes into total meltdown again.
If only I had the courage to £100 pip short during that LOL