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| The UK housing market: a bubble about to burst? |
try again
by Jack Straw
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#1001187
of 3278
 30 Nov 2002
06:54 PM |
This is tiresome, I am not sure what your problem is. I presume thats why hoogie has given up on you.
House Value 200,000
Deposit 20,000
5% Increase 10,000
ROCE = 10,000
------
20,000
= 50%
Mortgage and rental income are assumed to net, for simplicity for you. Of course rent is greater than mortgage. |
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Beg Pardon
by JoJo
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#1001186
of 3278
30 Nov 2002
06:53 PM |
| 5%, but doesn't invalidate the argument. Not 50%. |
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Jack
by JoJo
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#1001185
of 3278
30 Nov 2002
06:48 PM |
You mean like this?
house = 200,000
10% = 20,000
balance = 180,000
mortgage at 6% = 9,000
pricerise at 5% = 10,000
capital = 20,000
gross = 10,000 ROCE
cost = 9,000
nett = £1,000 = 1/2% without surveyor, lawyer, stamp, advert etc.
Just getting to the root of elementary household finance here. |
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Try again
by Jack Straw
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#1001184
of 3278
30 Nov 2002
06:29 PM |
Coco,
Try again, place some figures down on your calculation, itll be easier for you to understand.
Jack |
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Sums
by JoJo
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#1001183
of 3278
30 Nov 2002
06:24 PM |
Jack
I don't see Hogie's opinion of me, please forward.
ROCE might be gross - but not nett. 10% down, 5% price rise, AFTER ONE YEAR, but 6% mortgage to get there, all of which in first year is interest. NOT 50%. |
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Jojo
by Jack Straw
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#1001182
of 3278
30 Nov 2002
06:13 PM |
I read your comments with interest. I must admit I think Hoogies opinion of you is correct, and to quote him "try again",
Do your sums-
10% down 5% property rise - 50% ROCE.
Or to quote Golda Meir
"Don’t be so humble - you are not that great."
- Golda Meir, to a visiting diplomat |
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Sums for Hoogs
by JoJo
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#1001180
of 3278
30 Nov 2002
05:22 PM |
-------
Go back and recalculate your charts assuming the properties were leveraged, and see what rates of return you get. If you put a 10% on a property down, and prices go up by 5% in the first year, your actual return is a staggering 50%. This is personal finance of the most rudimentary basis!
-------
10% down, 6% mortgage, 5% pricerise = not 50%. |
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Yet more digressions
by sho_ryuken
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#1001179
of 3278
30 Nov 2002
04:43 PM |
Hoogstraten
Yet again you are digressing away from the whole point of this forum, which is short term property prices.
Nobody here is suggesting renting forever. We are discussing timing of entry into the market place. Or rather some people are - you are not.
Can you please answer my question, which you have notably avoided - when did a bull market ever just peter out and not crash ????
And to boot, after showing your ignorance of economics by never having heard of the phrase "dismal science", you now have not even heard of the international phonetic alphabet....
Go back to the drawing board and read what this forum is actually meant to discuss - short term property prices.
Please keep your grandiose verbiage to yourself and answer my question (now third time of asking). |
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............
by Alpha Zulu
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#1001178
of 3278
30 Nov 2002
04:39 PM |
Dear Mr Hoogstraten
Am I the only one to have noticed that you counter long-run arguments with shortermisms and then run for cover in the long-term bunker when things move towards the short-term?
Not long ago you were prattling on about the history of man and here you are telling us that this forum is about the short-term. You'd say anything to get five seconds of fame wouldn't you?
Really you aren't worth the bother Mr Hoogstraten. Enjoy your little wasteland kingdom of one. Goodbye. |
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Rudimentary personal finance
by Hoogstraten
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#1001177
of 3278
30 Nov 2002
04:10 PM |
Another extraordinary mail from Mr Zulu.
Your first comment is “Even those with a rudimentary knowledge of personal finance would see through them in an instant.” Bear this in mind when you read the rest of the mail.
You say in point 1:
“…you don't invest in something over the long-term based on affordability today. If, as you say, there is nothing to worry about for the whole economy, presumably the cost of mortgage financing will go up quite soon - even double if mortage rates go back to the levels of a few years ago.”
You seem to believe there is an exact correlation between having a strong economy, and high interest rates! This is a bizarre view. Most economists would see the opposite as being more generally the case. If you look at South Africa, Mr Zulu, you have high interest rates and a dog of an economy.
I do not think you understand how the cost of mortgage finance is determined. Banks do not immediately hike mortgage interest rates purely because the economy is doing well! The economy can be doing well and there can still be relatively low interest rates. This is particularly the case if there is low inflation. Since there is in fact goods price deflation in the UK (as a result of cheap imports from China and Eastern Europe, which should continue to flood in), interest rates are likely to stay low for the foreseeable future. Your suggestion that there will be an imminent doubling of mortgage interest rates is, like most of your commentary, so remote as to be best ignored.
You say in point 2:
“Equities offer better long-term returns than property - there is plenty of evidence. Since you aren't interested in short-term returns, I don't know why it has become important all of a sudden.”
I thought this forum was about the short-term? However, I will entertain you. You are simply incorrect again. We both agree that cash equities and property go up in the long run. The charts you are comparing show the rate of return on the total cash invested in equities are higher than property. The schoolboy personal finance you are applying has not realised that a property is generally a leveraged asset over 25 years, whilst cash equities are not financed with a 25 year mortgage.
Go back and recalculate your charts assuming the properties were leveraged, and see what rates of return you get. If you put a 10% on a property down, and prices go up by 5% in the first year, your actual return is a staggering 50%. Of course, leverage works both ways – but in the long run we are in agreement that the price of property is up. This is personal finance of the most rudimentary basis!
You say in point 3:
“Nobody in their right mind would gamble on a 25yr. binding mortage, knowing that they could face ruin and homelessness if they lost their job in the recession that many are predicting - just because 'property is very forgiving in the long run.”
Those of the more nervous disposition get flustered when the economy slows down. In my view, nobody in their right mind would entertain the idea of renting their whole lives. What sort of a person would you need to be? Of course, I think most of the doom mongers do want to buy. They are just hoping prices will fall. Perhaps they will - it is a big gamble they are making. I think your argument is based on the idea that “the meek will inherit the earth.” Maybe – but sometimes I think the biggest risk you can take is not to take a risk. The bank may take away your home if you can’t pay the mortgage – is this worst case scenario much worse than never even trying to make a go of it, and renting forever? Maybe if you are a gambler.
[Inflammatory language removed.]
[This message was edited by Monitor_CS on 30 Nov 2002 at 05:09 PM.] |
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Think for yourself
by sho_ryuken
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#1001176
of 3278
30 Nov 2002
03:43 PM |
Dear Mr Hoogstraten
Thank you for your comments - as I expected they are mostly empty rhetoric and pointless re-quotations from former posts rather than answering the question.
Yes, I do think this forum has become very tedious - mostly because of you - but sometimes I feel I have to post something to help prevent any more hapless FTB's listening to poor advice and buying at completely the wrong time.
I am perfectly capable of thinking for myself thank you, and I have held the same view for some time, long before anyone in the press was talking about possible price falls. If anything, they have caught up with my way of thinking, or I suspect they too have thought this for a long time but were too scared of panicking the public. For so many people to be speaking out now, things must be very bad !!
The reason I have mentioned these sources is because many of them are well respected economists and therefore my point of view has strong backing from policy setters, supranational organisations, financial services and academia. It's called building a case for an argument - try it some time.
And what is wrong with someone predicting a 40% price fall ?? This is only just above price increases in this year alone. Totally feasbile, I would say. I don't think 70% will ever happen, but it happened in Hong Kong and Japan - I'm sure they never saw that coming.
And what is this nonsense about "global economic wealth" ?? Are you talking about inflation ?? Whatever you are aiming at, you still haven't anwered my question.
Which bull market in the history of mankind never crashed ?? I certainly can't think of any, can you ?? If you think we are heading for Irving Fisher's "permanently high plateau", then good luck to you. |
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Malice in wonderland
by Alpha Zulu
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#1001174
of 3278
30 Nov 2002
03:04 PM |
Dear Mr Hoogstraten,
You make three blunt remarks which seek to justify buying in the current environment. They are all easy to rebuff. Even those with a rudimentary knowledge of personal finance would see through them in an instant.
1. Despite what you say, you don't invest in something over the long-term based on affordability today. If, as you say, there is nothing to worry about for the whole economy, presumably the cost of mortgage financing will go up quite soon - even double if mortage rates go back to the levels of a few years ago. That doesn't sound like a reason to buy to me.
2. Sadly, the reverse of what you say is true. Equities offer better long-term returns than property - there is plenty of evidence. Since you aren't interested in short-term returns, I don't know why it has become important all of a sudden.
3. Nobody in their right mind would gamble on a 25yr. binding mortage, knowing that they could face ruin and homelessness if they lost their job in the recession that many are predicting - just because 'property is very forgiving in the long run'.
I don't know where you get these ideas of yours. I really don't. |
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Dare to walk a different step
by Hoogstraten
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#1001173
of 3278
30 Nov 2002
01:47 PM |
sho_ryuken
I remember your contributions from some time ago.
You said:
“Maybe we could achieve that if people stopped replying to the like of "Van Hoogsraten" with his oh-so funny user name. Or better still, maybe the administrator could cut out his "contributions" which only serve to distract from any sensible discussion.”
I note that you have had a change of heart, about a month later, and are not only still reading my mails, but also replying to them!!! I find this change of heart rather curious…
I do not recall ever trying to impress you, although the abuse I threw at you (justifiably) was rather impressive. For the record, I would probably not consider buying myself now, with the possible exception of slum property (which would be income rather than capital based). In any case, what I intend to do is not really relevant to the topic of this forum. Different people have different circumstances – only doom mongers believe they have the right to insist that they know what everybody else’s investment decisions should be.
You ask the question “why would anyone consider purchasing an asset today when they think that it is going to fall in value in the short term????” Here are a few reasons why they may want to buy now:
1. Interest costs may be lower than rentals for the properties they are considering. They may even be willing to pay a small premium, to own rather than rent.
2. They may consider that bricks and mortar are a better bet than alternative investments such as cash equities, in both the short and long term.
3. They may not believe property prices will necessarily fall in the short term. They may be willing to gamble on the short-term, secure in the knowledge that property is very forgiving in the long-term, if they do get it wrong.
Thank you for your list of those who have warned about property price rises. I prefer to think for myself. I find the cut and paste brigade from the latest tabloid to be a curious approach to analysis. I do not think many papers would be sold with the headline – “Property prices set to remain steady for the next few years.”
In any case, I do not remember Mervyn King (or any of the others you mention) saying he thought UK property prices was going to fall 40%-70% in real terms, as many of the doom mongers on this site are arguing. Clearly, if he does believe this, he is performing his BOE tasks negligently (he would cut rates down to 0% immediately, to head off a Great Depression). It is reasonable to assume from his actions that, to the contrary, he considers your scare mongering figures of collapse outlandish and ridiculous, as I do.
Finally, you say:
“Again, it has been asked many times for an example of a bull market which has not burst - can we please finally have a valid example of this, instead of the usual childish abuse I'm sure will be coming my way following this post??”
The most important statistic of all – global economic wealth – has been increasing since the beginning of man. It is not one asset class – it is every asset class, and the evidence goes back to since man began. Of course, you will say, there have been periods when wealth has declined. This is the case – nothing has a constant rate of return, which seems to be what you are searching for.
If your argument is purely that we live in a world where there is volatility, then I agree – prices do not necessarily go up forever. If your argument is that volatility means that property prices must collapse right now, I disagree – the closest you have come to proving anything is by plagiarising “experts” views. Rather than continually appealing to authority, I suggest you try to think for yourself. |
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Stating the obvious
by sho_ryuken
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#1001172
of 3278
30 Nov 2002
12:40 PM |
Hoogstraten
Can we change the record please ?
Obviously property will make you money in the long run - I don't think anyone has been disputing that fact at all, so why do you keep going on about it ?? Are you just trying to impress us all with how many houses you alledgedly have, because your shaky arguments are certainly not impressing me. If you really do have lots of houses you are about to lose a lot of paper profit. If you really were a shrewd investor you would be selling up right about now.
What we are talking about is timing of entry into the market. Everybody knows that to make real money in a market you have to buy low and sell high, just as the real van Hoogstraten did. So why would anyone consider purchasing an asset today when they think that it is going to fall in value in the short term ????
If certain people on this forum think that prices are not going to fall, then why do the following well qualified and highly regarded individuals and organisations(among others) think prices probably will fall ??
- Mervyn King, future governor of the BoE;
- The economics tutor for Oriel College, Oxford, as we we saw in the FT this week;
- Martin Wolf, chief economics editor for the FT;
- The OECD;
- Luqman Arnold, chief exec of Abbey National;
- Howard Davies of the FSA who I noticed has recently sold his investment property.
Can someone please address this question with some sensible debate ? The case put by these same people has been put forward very ably by people on this forum, including Rob G (well done for some interesting points !!), but I have not seen much adult debate coming forth from the other side.
I would be very interested to see if the opposite camp can provide a list of authoritative economists/organisations that support their argument - and I don't mean the latest FPD Savill's marketing material.
There have been plenty of interesting links to news articles provided by Rob G and others - let's see if Hoogstraten can provide us with the same to back up his arguments.
Again, it has been asked many times for an example of a bull market which has not burst - can we please finally have a valid example of this, instead of the usual childish abuse I'm sure will be coming my way following this post ??
I won't hold my breath. |
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First Time Buyers
by Alpha Zulu
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#1001171
of 3278
30 Nov 2002
12:27 PM |
dear Mr Hoogstraten,
This forum is about opinions, not about egos. I will begin serious posting when you finally give first time buyers a proper reason for entering a property market which has already risen by over 100% in only four years and where policy makers in the UK (e.g. BOE) have voiced ever louder fears that the current global outlook poses serious risks for new entrants. Please discuss. |
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