Van

I posted this in reply to Moneyweek's recent article:

http://www.moneyweek...-property-23100

76. Van

(22 August 2012, 11:02AM) Complain about this comment

 

I've thought quite long and hard about this, and have concluded that this model unfairly represents the bull case.

 

you have to remember that for -£1k/year, you will own the house at the end of your investment. That's £25k outlay over the life of a mortgage, and for a return of £165k (assuming flat prices).

 

By contrast, if you pay 1k into a year into a REITS vehicle returning 5%pa and compound it over 25 years, you end up with just £48k after 25 years. The BTL still wins, thanks to the leveraging model.

 

 

But, tilting it in favour of the bull case, we know that we live in an world where central banks create inflation, and it's highly likely that the nominal price of the average housing will be higher than £165k at the end of the mortgage term, even despite their current modest (real term) overvaluation. And, as we have seen, rents are still under increasing pressure, so there is some firm support underpinning current prices.

 

 

Agree/disagree?

Factor in even some modest inflation and the numbers really start to rack up in your favour and you can make many times over your £25k outlay.

Perhaps the correlation has been weakened. Theres been so much interference in the housing market, what with lender forbearance and low interest rates, and stocks have been supported with QE just look what happened last autumn when there was almost a crash. They QEed and bingo back up they went.

Didn't one of the big builders triple H1 profits and reinstate the dividend?

The market is not collapsing, and in such an environment builders can find a way to make money. BDEV is probably a much better - but smaller - company than it was in 2006/2007. Disproves the inflationists' argument that you need ever rising prices to make profits.

With the full article here http://www.retiremen...rice-index.html

 

Today sellers still think there houses are worth what they were marketing them for at the peak. Unfortunately, these prices are 40% above what they seem to be selling for.

AKA The Delusion index.

Nice blog, good stuff.

SIlver futures;

 

Strong resistance at $26 and the downward sloping trendline should see a resolution this year.

 

 

 

18 month cyclical bear market, within a secular bull?

Also, is that GEI's Van at comment #2?

Yes.

Ahh, the curse of Time Magazine strikes again...

2011

:

2012:

http://uk.reuters.co...E86U1H520120731

Facebook has lost more than 40 percent of its value since becoming on May 18 the first Americancompany to debut with a value of more than $100 billion (63.7 billion pounds).

Nor I, but I've seen capitalism fail for the same reasons, the greed and selfishness of people who screw the system (whichever it is) for their own benefit (including the interventions in the "free market" which after all protects them the most).

 

But That is NOT capitalism.

True Capitalism relies on a laissez faire approach between willing parties - voluntary, uncoerced exchange of private property for mutual benefit. That's all capitalism is.

The political and monetary system in most "capitalist" countries is still nearer to fascism that true capitalism.

Osbourne's deficit elimination plans are going to be left in tatters by these GDP numbers.

It's reasonable to suggest that we have been in recession since Q4 2010 when you consider than 4 of the last 6 quarters have now been negative.

Think I'll hold on to my gold...

Ignoring the uncalled for "calm down" , yes there are many problems today, and I have acknowledged that many times. I have also stated many times that the finance industry needs to be sorted "ASAP".

 

The generational point is interesting.

 

Someone leaving school (university) say in 1992 would never have experienced a recession, indeed, things improved year on year all the way to 2007-8, so for them the situation today seems really bad (they had a bloody good run mind).

 

However, for people leaving school in the mid 70's to early 80's, this is nowhere near as bad as it has been before.

 

Moreover, for people leaving school in 1940, then this is a breeze etc etc.

 

I guess it’s all relative.

 

(PS Rose tinted view! If my friends & family heard me described like that they'd p**s themselves laughing. They call me Dr Doom! Only on GEI (or HPC) could I ever be considered an optimist )

I disagree. It's VERY bad out there - it's just the socio-economic composition of those suffering from the recession has changed.

In past downturns it was old industries that were phased out - this affected mostly older, blue collar workers. Now the brunt is falling on the young generation. Many loaded up with debt from worthless college degrees and have no real skills that our workforce needs, cannot barely afford a room to rent, yet alone dream of buying a house.

This is actually a trend that started well before the HPC and financial crisis, and it everything to do with the Britain slowly becoming less and less competitive in the world.

Worth a listen: http://www.bbc.co.uk/programmes/b01jqhly

Do you think it was all part of a master plan, or just a consequence of a system that evolved over time, without proper controls, which enabled certain people to take advantage of it?

I think just a failure of human nature - the present is ours; the future is someone else's problem. All great civilizations have collapsed due the debt they placed on their future generations, why should ours be any different?

Surely the point of a bank is to act as a utility that connects customers that have capital deficits to customers with capital surpluses. This allows the virtuous (not malivestment) of those capital deficits. Or maybe the real point of a bank is to do something else entirely. See a problem here?

+1!

But somewhere down the line that was perverted to become an inter-generational theft of wealth from the future to the present.

 

Greater London- Rightmove

Seven Biggest Moves Down

====

#1 : -28,099 : -6.81% : Dec.07

#2 : -21,096 : -5.27% : Aug.08

#3 : -17,190 : -4.07% : Aug.10

#4 : -17,136 : -3.59% : July 12

#5 : -15,496 : -3.85% : Aug.09

#6 : -14,633 : -3.38% : Aug.11

#7 : -13,088 : -3.14% : Nov.09

 

The drop in July'12 was the 4th largest drop since 1999,

in terms of GDP, 5th largest in percentage terms,

and the only Big Drop to occur in July.

 

Here are average Mo-by-Month changes

===

J 3,403

F 5,749

M 2,622

A 2,302

M 2,861

J 2,545

J 1,880

A -7,119

S 1,372

O 9,108

N 1,187

D -4,498

 

Next month may be interesting.

Nov. and Dec., too.

Thanks, that's interesting.

But I'm far more general - I believe seasonality in the UK housing market can be broadly divided into a strong H1 and a weak H2. It may be as simple as waxing/waning with the days getting longer/warmer & shorter/colder. The 7 biggest drops all occur in H2 - it's probably just a statistical fluke that Sept/Oct have not appeared in the list.

"LARGEST DROP FOR FOUR YEARS" - Rightmove

London down -3.6% in a Month - I call that a "crushing" fall

I reckon that'll be the seasonality that I keep going on about kicking in...

???

 

But Van, we are only half way through the year, and the spring bounce is over.

 

Do you really think the next 6 months will be better than the previous 6?

 

Really? Just another 0.5% off over the next 6 months?

 

No, you'll find that prices fell in H2 2011 too, so to keep the YoY declines going prices have to fall by at least as much in H2 2012.

Surely you know this by now.

So, seems John Doe is still odds on favourite to bag the "guess for the next year" two years running

But you predicted "between -5% and -10%" which looks like a pipedream.

Reckon my forecast of -2% (159k eoy) is looking remarkably good.

House prices drop 0.6%

 

UK house prices fell by 0.6% in June (May: +0.2%), according to Nationwide, leaving the value of the typical home 1.5% lower than a year ago, at £165,738.

 

The lender attributes the monthly decline to the difficult economic backdrop and the temporary boost to the market seen earlier this year prior to the ending of the stamp duty holiday.

 

As for the year ahead, Nationwide regards the coming months as “highly uncertain” for house prices because economic conditions are likely to remain challenging.

Seasonal H2 weakness has started a month early

Breaking news: offer upped to £375!

Time to invent a phantom bidder.

It's a non-sovereign currency. But that could change easily with the re-introduction of a gold standard, where it would be a super-sovereign currency once again. There's no 'natural' money. In a more 'natural' state you just have barter. Money per se is fiat.

The fact that it is non-sovereign is one of it's virtues. It means it has been chosen by the people; the trading public, not the dictators.

And gold IS money; it is the most natural form of money - that of a medium of exchange. Do not make the mistake of confusing Money for Legal Tender.

Here are mine:

 

Portable wealth.

Out of the system (means testing, etc..).

Sleep easy at night.

Unstable taxation systems.

Rigged equity and bond markets.

It's Cheap!

It's not fiat.

scenario: trading up from a 300k house with 100k equity to a 400k house.

Buying

---------

Stamp duty: 12k

Covenyancing costs: 2k

Moving cost: 1k

Selling

---------

EA fee @2%: 6k

conveyancing cost: 1k

Remortgaging fee: 1k

Total: £23k

I dunno about you, but 23 grand buys a lot of rent in the markets in which I operate!

While a few might move that often, the vast majority, especially those with families certainly don't.

 

Besides, you'll see I didn't increase the rent figure over 25 years (fat chance of rents staying the same, wouldn't you say?) to make it a more realistic comparison.

 

So whilst it's true interest rates will rise at some point, increasing the mortgage repayments, the cost of moving to long term fixed rates will be far less than the corresponding rent increases over that period.

 

More like the real world?

Good point, but don't forget to factor in maintenance and repairs for homeowners!

No you don't, but, however you look at it, once that big ole mortgage is paid off, the interest payments (or rent to the bank, as such) stop, finito, end of. (To be precise, you could just say the house cost you more (mortgage principle + deposit + interest)

 

The rent to a landlord goes on as long as you do, i.e. forever in your frame of reference.

 

first 25 years paying a repayment mortgage at 1000 per month = 300,000

first 25 years paying eq house type rent = 300,000

 

next 10 years of owning = 0

next 10 years of renting = 120,000 (assuming no rent increases over that time, however unlikely that is)

 

Also, once the mortgage is paid off, (or indeed as soon as equity has been built up) that house is an asset. You can't leave a rented place to your kids/friends/charity etc.

 

Of course, in the same way, it's a potential* liability when prices are falling like now .

 

Time and a place for everything .

These calculation comparisons need to be based in the real world. It's not realistic to live in the same place for 25 years. Indeed the reason that renters rent is that they like or are required to be highly mobile. Throw in the cost of moving home every 5 years from a buyers' point of view and let's see how the calculations come out.

Indeed.

 

Unless of course the financial collapse some here imagine actually arrives, then they'll print to the moon and back, and the masses will get their wage rises, they'll pay off their fixed mortgages and then, once they've paid off their £200,000 monthly heating bill etc, they'll probably even have enough left over to buy a loaf of bread a week

No, it'll just get stuck in the balance sheet of the banks. You don't think the plebs will actually see any of the new money, do you?

Or perhaps it's just a rush for assets, borrowing at long term fixed rates and hoping for an inflationary (wage) spike?

They'll be waiting a LONG time.

The only thing that goes up in Pretchner's EW models is his ever increasingly detached ego.