al4x1

I know exactly where your're coming from but if you look at another scenario my sister and her husband first bought in 2005, 1 bed maisonette been trashed by tennants so got it reasonably cheap but still very expensive. Put heating in and did it up and sold it 4 months later, cleared 15K to add to their equity. Next one was a 3 bed end of terrace again trashed by tennants and they did the same this time adding 40k to their equity in just about a year. Did the same again with another 3 bed terrace and this time stayed longer and sold up in last november adding another 55K to their equity pot. They've now bought into a project with me with their lump sum of 110K and not a moment too soon to be out of the market they were in, ok they had to work at it and were helped by house price inflation but they struggled to buy the first one but to them nothing ventured nothing gained. It all depends whether you intend to buy to stay there or buy with a future view to moving onto something bigger.

If you can rent a nice large house for £800 a month keep on doing so equivalent ones round me are >£1500 a month to rent and rental prices seem to be going up fast as the demand increases. I don't know if there is ever a right time to buy or a time that you won't have to struggle a bit to do so one things for sure though I don't know anyone who bought late 90's early 2000 who has lost money or stands to do so even if prices dropped 40% and realistically when you look at the cost of building a house these days why should the value of a house thats been built drop below the cost of building one.

john banks

Jay m A, she has an MBA, reads Moneyweek and tends not to get carried away too much. She does get excited when she sees bunnies and is talking rather too much about babies though, so I'm not complacent.

al4x1, surely the land price with planning permission is the largest part of the cost, so I wouldn't see the cost of building as putting a particular floor under this crash. Houses changed hands in pubs in the last crash for far less than the cost of building.

john banks

Traders predict house prices will fall by 50% in four years | Business | The Guardian

House price futures predict c.50% real terms drop. Bottom in 2011.

If you think this is more than what will happen you could put your money on a long position and profit if you're right.

lozgti

"This government says this housing depression will be different from the early 1990s. Yes, that's right. It will be worse."

Those that say it won't fall,20,30,40 percent because thats ridiculous,I'm not sure it is.

As daft as it sounds,Houses are all currently wrong.

As that little piece says,maybe in 2011 they will get back to the levels they are now.

They all shot up far too much,far too quickly.

(I'm sure the government,banks etc always knew this point in time would inevitably arrive,or a 'bust' as we know it)

speedking

2017

speedking

Houses fall 50% over 4 years (includes the last 8 months).

Then from 2011 to 2017 they recover to current values, i.e. they increase by 80% in 6 years. That's 10 percent a year, 6% above (assumed) inflation. And that's described as a slow climb back!

Someone talking up the future market?

Deep Singh

.


So does that mean you won't buy until at least 2011?

john banks

Perhaps not I don't mind.

Petem95

I must admit I was wrong with my predictions about the housing crash....


I knew it was coming, but I never imagined it would get THIS bad! It's like the perfect storm for a housing crash - credit crunch, rocking inflation meaning rates may soon actually rise, massive numbers of investors potentially going to lose their homes etc etc

50% falls by 2011 sounds good however - that puts prices back to 2000-2001 levels, but of course some areas will fall further, some less.

Any FTB's out there considering buying now must be crackers, or getting a MASSIVE discount off the asking price.

Deep Singh

You don't mind what?

john banks

... waiting to buy until 2011.

Inflation shock leaves markets fearing three interest rate increases this year - Telegraph

Interesting movements on swap rates.

PeteBrant

I wonder if the government will suddenly decide to include Mortgages in the CPI rate now that they are on a downward trend

john banks

If they do that I'll short GBP and buy more gold.

apples24

iTrader: (1)

blimey i know sod all and maybe i was right, a year ago on here i was saying we need a reset to 7 years ago house prices etc, it might actually happen!!

in all honesty i welcome it and look forward to it, atleast the economy can start again, just a shame how many people will be in the red because of it.
thats life i suppose.

but all the people that kept saying dont be silly, house prices will never fall they will keep rising or at the worst level out, prob eating there words right now.

reading this thread i decided to look on the right move website, and indeed houses that were 179k ish a year ago are now 150 - 160 already

if they come down to 120 i shall myself buy my first house, if i can some how gawd knows how but a second property would be in the plans, i do know for a fact i will be financially much better off free cash wise in a few years as we have a lovely tidy sum coming 2010 ish (not from death before you all start on me) not a massive amount but certainly enough deposit and some for a self cert

lee

lozgti

Noooo,you will start the problems all over again!

Don't be greedy,one house each

Deep Singh

John, if you don't me asking what measures are you using to ensure that the sizeable bulge in your pocket is not eroded by inflation?

Thanks

john banks

Index (RPI) linked savings certificates, 7% fixed rate 1 year accounts, oil shares, gold, silver, equities (only a small part UK). Gold hasn't moved a huge amount since I bought, but I'm making >£1000 a month tax free by spread betting it.

paulg1979

iTrader: (1)

Is it not all relevant? Sell cheap buy cheap!

Deep Singh

John:

1) Index linked certs will give approx 5.5% tax free

2) 7% fixed gross will be about 4.5% net

3) Your equities if bought via funds will not return in excess of the real rate of inflation (after tax and management fees have been taken out) unless you are really lucky and of course there is the risk of losing money.

None of these are keeping up with the real rate of inflation, especially for a middle class person like you, are they?

Also if the gold price is not moving much how are you making £1000+/month spread betting on it?

PeteBrant

The CPI rate of 3% is a "real" rate of inflation. In that it's not made up.

The "basket of goods" is made of of thousands of items, all based on actual price paid rather than RRP.

As for spread betting on Gold. As with any bet, your return depends entirely on your stake.

Not answering for John, just stating the obvious.

Deep Singh

Thanks for stating the obvious

What I mean is that the more relevant rate of inflation that reflects what we are paying extra for fuel, food, holidays, private schools(I know this does not apply to John at present) etc is alot more than 3%. It has been estimated by some to be 8-12% for the middle classes. ( I only use the term middle class because thats the term used by those that did the research)

As for the spread betting on Gold, if the movements are small then a)they become very difficult to predict as trends and signals are less pronounced and b)the stake has to be very large and hence risky.
Therefore, I'm curious to know how JB has managed such a fantastic return( so I can copy him! )

john banks

2. They are not in my name, so the tax is less.

3. Not bought via funds mainly. Some are already up over 30% year to date, that is not the average return though.

Spread betting - timing the buys and sells. It shouldn't work, but my success rate suggests otherwise so far. I typically make money on movements of only a few dollars in the price of gold. I only buy after large dips, which are frequent, but they have always recovered so far. My exposure each time is from £17k upwards (£2 a point).

I'm trying my best without taking excessive risk. I needed £150k mortgage to buy the house I wanted in October 2006, now it is £50k.

My personal inflation rate doesn't seem terribly high.

BTW, moved house today.

john banks

This afternoon's smackdown of the gold price at about 1.30pm is the sort of situation I would often buy in and then sell after the almost inevitable recovery, often my positions are open less than an hour... There are some interesting patterns that occur as the various markets open and close that it seems to be possible to take advantage of.

Deep Singh

John does your £17k exposure on gold mean you could lose up to £17k if the market went against you?

When you say you bet £2 per point, what does the point actually refer to?

Hope you don't mind me asking, I'm trying to get my head around this spread betting.

john banks

I gain/lose £2 for every 0.1$ movement in gold price. I could lose £17k if gold became worth nothing.

The example I gave, buy today at $858 sell now at $865, movement is 70 points, £140 profit. This would be a fairly good single trade, typically the profits are £50-150 a pop. It has been more than worth a dabble for me, luck or judgement? Apparently most people lose on their spreadbetting accounts.

LG John

I'm confused? I thought you'd be renting that big farmhouse for at least the last year (probably longer)??

john banks

No just moved to this one yesterday. I was in a farm steading (barn conversion to the English ) for the last 18 months, but that lease came to an end.

LG John

I still can't see the arguments against long term property ownership in favour of renting. I accept that if I was a FTB I'd not buy into property right now; you can get more for your money renting in the short term and you'd be buying into a declining market. Wait for the market to bottom out (or where you think it's bottoming out) then jump on board.

Alternatively do what John does and hop on and off the train at the correct stations at the correct times and otherwise invest your capital. I would suggest however that such a lifestyle isn't for most and more importantly most people aren't intelligent enough to pull it off - they'd probably spunk the capital on a depreciating asset (M5/911, etc).

For my part I bought a flat, which I love and which suits my needs, in July 2003 for £85,000. I have invested approximately £12,000 in home improvements although these improvements weren't necessarily to make a gain but rather to improve living standards. That puts me in at £97,000 invested in a property that is currently worth around £140,000. If I sold I'd have theoretically made £43,000 in 5 years or around £716 a month.

Now, lets assume that over the next few years house prices did crash by 40%. That would wipe approximately £56,000 off the value of my house taking me roughly back to the price I bought it for. Granted I'd have lost the value of my home improvements. However, a 40% reduction in value is probably about as bad as it could be expected to get and, ultimately, it will rise again in the long term. Lets say for arguments sake though that I paniced and bailed out of the market at around the time the value of my home was what I'd put into it (£97k). Have I lost out compared to renting?? No! Even at that I've still paid off between 5-7 years worth of the capital on my mortgage meaning that once I'd settled everything up I'd still be due a cheque. If you extend the time frame where paying off a mortgage (interest & capital) chips away at how much you owe on a property and where house prices rise in the long term then the result is that ultimately you will own a property outright, will have had the full use of that property for years and it's value will be worth a lot more than when you bought it 20-25-30 years ago. That, for me, is the ultimate appeal in ownership.

As for short term movements in the market I, as a home-owner, welcome a crash in the market as I'm near the bottom rung of the ladder with a 2 bed flat. If Edinburgh prices dropped by say 25% then I'd lose £35k from the value of my home but a typical 3 bed detached house would drop from around £300k to £225,000 making it more affordable to me by £35k. That also assumes that flats and 3 bed detached houses fall at the same rate which I doubt they do (anyone know?). I'd guess the bigger the house the harder they get hit, relatively speaking.

Ultimately the housing game in the UK is about as safe as it gets IMHO. The key thing to accept is that its a very long term game, that you must have the bankroll to handle the swings (i.e. horrible rises in interest rates) and you must accept the variance in value over the years. There is no point getting upset about a downswing in the market if you don't intend to sell up!

Deep Singh

Saxo, JB's situation is different. He called the top 18 months ago (or so) and decided to go into rented. Now the timing has been perfect and so it would make no sense for him to buy an asset that is falling in value until it has reached the bottom.
For most of us this is not possible, I was just as sure that we had reached the top but was not prepared to sell the house I love and have spent £££££££££ and two years refurbing to go into rented with my wife and two small kids. I'm happy like you to ride it out with regards to the roof over my head.

This property cycle will kill some and provide fantastic opportunities for others. In a years time those people with low gearing and a good income will be able to buy up loads of cheap property ready for the next cycle, but they musr remember to sell and realise their profits or they will themselves become the next victims

john banks

I hope it is in only a year, but I suspect I may wait longer. If I had kids I probably would not be renting, although many do.