Kurtz Posted March 9, 2011 Report Share Posted March 9, 2011 Bold as Brass is correct, up to a point. It depends when you buy and with how much debt. Once a house has effectively been paid off, its monetary value is really of utterly no consequence, really doesn't matter. It is still performing its task of providing the basic human needs of shelter and security. Which is what houses were [once upon a time] for. All my old folks in the UK have homes paid off and what they are worth is of no consequence. Without these homes they'd be in real trouble now, i.e., they'd probably have to live with me in Asia. I remember years ago, a dump truck driver on one of my sites saying how his mortgage was 17 Pounds a month, that he'd bought in 1995 when they were cheap. Doubtless people in the same street were paying 1000+ Pounds a month for the same standard of housing. You need to buy, at some point. You need a secure base with low costs for your dotage. Link to comment Share on other sites More sharing options...
John Doe Posted March 9, 2011 Report Share Posted March 9, 2011 All my old folks in the UK have homes paid off and what they are worth is of no consequence. Without these homes they'd be in real trouble now, i.e., they'd probably have to live with me in Asia. Yep, 60% of UK homes have no mortgage. Link to comment Share on other sites More sharing options...
Kurtz Posted March 9, 2011 Report Share Posted March 9, 2011 Yep, 60% of UK homes have no mortgage. I understand (believe me I do) that people have to move around for work and this is the central issue to renting for the young as there are no stable, long term local jobs anymore. So. Caravan. Yup, gyppo style. Save and buy a small place for retirement when the market is down. Link to comment Share on other sites More sharing options...
tallim Posted March 9, 2011 Report Share Posted March 9, 2011 Clearly I was making a hypothetical point regarding the REASON why someone buys a house. In my hypothetical example I was merely pointing out that even IF a house became worthless over the 25 years of paying a mortgage, all other things being equal, that person would be in a better position than someone who had rented all that time. And my point is that they wouldn't neccessarily be in a better position, as Meralti noted, based on history it looks like the game might be weighted in average in their favour, but there are plenty of examples of people who are better off for not having done this, particularly in commercial property (HSBC's London building being a great example). http://www.telegraph.co.uk/finance/newsbys...on-market.html# Given that, in the real world, it costs money to rent a house off someone else, clearly a house will never have no value. I was just trying to challenge the assumption that 90% mortgages are intrinsically a bad thing. On this basis loans for anything that depreciates in value are, by definition, a bad thing. As other people have said, it depends on the income multiple as well as the LTV. I would absolutely agree that a loan for a Lamborghini at 4x your annual salary would be a bad thing, the risk is too high. A loan for a Ford Focus at 0.5x your annual salary would be OK. Luckily no-one gives out stupid multiples for most things, the only time they do is against assets in which they expect some price stability, like houses, which turns them into investments. If you are buying a house to live in, if you decide that, one day, you would like to own a house and not rely on someone else renting a house to you - then buying one on a 90% mortgage makes sense - if you can afford it. And all the opposition to that is saying is that you don't know if you can afford it. You're taking a risk that you will not need to sell at the point when you might be too far underwater on your loan. Getting the weighting of risk correct is the key thing, 90% is risky because you almost always overpay when you buy something that goes to the highest bidder, I spotted this great quote on another website today: The value of any item or property that is widely enough advertised to the relevant set of purchasers will tend to be the price bid by the immediate underbidder. By definition the purchaser pays "over the odds" (because nobody else is willing to pay that amount - or it would have sold for more). The underbidder has shown what he is willing to pay for the asset and this price is the price that the purchaser could expect to get. On the day! The correct value will vary depending on the number of items for sale, the supply of money/mortgages and the general sentiment of the relevant set of purchasers, fashion plays a part. Link to comment Share on other sites More sharing options...
drbubb Posted March 10, 2011 Report Share Posted March 10, 2011 <!--quoteo(post=208762:date=Mar 9 2011, 03:42 PM:name=DrBubb)--><div class='quotetop'>QUOTE (DrBubb @ Mar 9 2011, 03:42 PM) <a href="index.php?act=findpost&pid=208762"><{POST_SNAPBACK}></a></div><div class='quotemain'><!--quotec-->Tell that to the good people of Detroit ! I was born there, so I know that you cannot take it for granted that "a house will never have no value"<!--QuoteEnd--></div><!--QuoteEEnd--> So what? If someone in Detroit has paid off their house and it is now worth nothing - so what? They still have a house and don't have to pay rent to anyone. If your argument is that if you had waited all this time you could now buy a house in Detroit for nothing - well, who'd have known? You could probably buy a house for next to nothing after an earthquake but it's not something you'd bet on happening in the particular town you want to live in. It's a risk you take in life. If there was major radiological accident at Aldermaston and it contaminated the local area - houses there would be worth nothing - but that's no more relevant than the fact Detroit has died. What you going to do if you want to live in Aldermaston - just wait until the day it happens? LOL. What a funny attitude! On the way towards near Zero, those $100 Detroit houses will have been a real millstone. Paying a mortgage in a house that has negative equity is a burden: financially and psychologically. Do you think during the last 10 years of seeing one's house collapse in value, while the neighbors move away, and the crack dealers move in leaves one with warm feelings? No one is saying: "Goody! I once thought I would love living here. Now I hate it. But at least after another ten years, the house may hold its present $100 value, and after that time I will have paid it off." Instead they will say: "I never should have bought this shack! If only I had my money and freedom back, I could move away to some place nicer, and give my children a better future." Cities go up and down, and even London has shown us years and decades of falling living standards over its history. Link to comment Share on other sites More sharing options...
Kurtz Posted March 10, 2011 Report Share Posted March 10, 2011 LOL. What a funny attitude! On the way towards near Zero, those $100 Detroit houses will have been a real millstone. Paying a mortgage in a house that has negative equity is a burden: financially and psychologically. Do you think during the last 10 years of seeing one's house collapse in value, while the neighbors move away, and the crack dealers move in leaves one with warm feelings? No one is saying: "Goody! I once thought I would love living here. Now I hate it. But at least after another ten years, the house may hold its present $100 value, and after that time I will have paid it off." Instead they will say: "I never should have bought this shack! If only I had my money and freedom back, I could move away to some place nicer, and give my children a better future." Cities go up and down, and even London has shown us years and decades of falling living standards over its history. There's definitely a time to buy. Right now, or so it should be in the UK but for government fraud. I remember the 1991 crash well. I remember houses changing hands for cash (very small amounts) in the likes of Liverpool, only to be 150k ten years later. That said, I'm quite happy living in a house, paid for, yet has no resale value. 0. Nothing. Link to comment Share on other sites More sharing options...
G0ldfinger Posted March 10, 2011 Author Report Share Posted March 10, 2011 LOL. What a funny attitude! On the way towards near Zero, those $100 Detroit houses will have been a real millstone. Yes, and the obvious problem is mobility. Who nowadays can afford to lock themselves into one place forever? A lifetime tenured state employee, fine. For the rest, it can become very necessary to move every now and then. Now you want to move, but you're going to lose two times your annual income because of negative equity. Will you still move? If not, staying might actually make things worse later. Link to comment Share on other sites More sharing options...
John Doe Posted March 10, 2011 Report Share Posted March 10, 2011 Yes, and the obvious problem is mobility. Who nowadays can afford to lock themselves into one place forever? A lifetime tenured state employee, fine. For the rest, it can become very necessary to move every now and then. Now you want to move, but you're going to lose two times your annual income because of negative equity. Will you still move? If not, staying might actually make things worse later. Be fair guys, the vast majority of people don't actually move very far from where they were born (UK, EU especially. Don't know about US but it seems the same from TV). Yes, the more ambitious, the high flyers and some of those with no kids, jet all around following their careers and their dreams. The rest find family, friends, good schools etc far more important. Who's right? (Disclaimer, I move quite regularly ) Link to comment Share on other sites More sharing options...
Kurtz Posted March 10, 2011 Report Share Posted March 10, 2011 Yes, and the obvious problem is mobility. Who nowadays can afford to lock themselves into one place forever? A lifetime tenured state employee, fine. For the rest, it can become very necessary to move every now and then. Now you want to move, but you're going to lose two times your annual income because of negative equity. Will you still move? If not, staying might actually make things worse later. Doesn't work any more, the home ownership thing for the youth. Jobs can last 6 months in one place, then 6 months unemployed and then another job hundreds of miles away. I gave up early on. Lived on site, in the car or the site office on the filthy floor (at the height of the boom years was afforded the luxury of a site sleeper cabin, WHOOHOO!!!) for 12 years and built a place in Asia. I only go back to live on site if there's work (can be 18 months or more) and then fly home here, where the costs are minuscule compared to the UK. Link to comment Share on other sites More sharing options...
BoldAsBrass Posted March 10, 2011 Report Share Posted March 10, 2011 Yes, and the obvious problem is mobility. Who nowadays can afford to lock themselves into one place forever? A lifetime tenured state employee, fine. For the rest, it can become very necessary to move every now and then. Now you want to move, but you're going to lose two times your annual income because of negative equity. Will you still move? If not, staying might actually make things worse later. In which case we are in a new paradigm - and no-one who needs a mortgage to buy a house should ever take one on. Link to comment Share on other sites More sharing options...
BoldAsBrass Posted March 10, 2011 Report Share Posted March 10, 2011 LOL. What a funny attitude! On the way towards near Zero, those $100 Detroit houses will have been a real millstone. Paying a mortgage in a house that has negative equity is a burden: financially and psychologically. Do you think during the last 10 years of seeing one's house collapse in value, while the neighbors move away, and the crack dealers move in leaves one with warm feelings? No one is saying: "Goody! I once thought I would love living here. Now I hate it. But at least after another ten years, the house may hold its present $100 value, and after that time I will have paid it off." Instead they will say: "I never should have bought this shack! If only I had my money and freedom back, I could move away to some place nicer, and give my children a better future." Cities go up and down, and even London has shown us years and decades of falling living standards over its history. I find your 'houses are an investment - consider them as an investment - always consider what happens if the price goes down so (presumably) never buy a house if there is a risk it might go down in price (i.e. NEVER buy a house) etc. philosophy' to be a 'funny attitude'. You must spend your life worrying about money. "Paying a mortgage in a house that has negative equity is a burden: financially and psychologically" It doesn't have to be - it's only a burden if you're obsessed about money and the price of the house and 'have you lost money (ohhh NOOOOOOO!)' and so on. My nephew bought a bigger house 3 years ago. Almost certainly it is worth less than he paid for it. He has a wife and two kids, another on the way. He doesn't feel burdened financially - he just pays the mortgage. He is not burdened psychologically by his negative equity - he is quite sanguine about it and realises that moving up (he wants a bigger house in a couple of a years time when no. 3 needs his/her own bedroom) will be easier if prices don't go up. Some people just live their lives and enjoy them. As for extrapolating what has happened in Detroit to draw some sort of absolute conclusion about buying property in general - can't see the relevance myself unless - and I guess this is true - you are hovering over the UK waiting for the armageddon you are convinced is going to occur. Link to comment Share on other sites More sharing options...
tallim Posted March 10, 2011 Report Share Posted March 10, 2011 I find your 'houses are an investment - consider them as an investment - always consider what happens if the price goes down so (presumably) never buy a house if there is a risk it might go down in price (i.e. NEVER buy a house) etc. philosophy' to be a 'funny attitude'... They must be considered an investment the moment you can't walk away from them at any price. Risk management is not about avoiding risk at all costs, it's about getting the timing and circumstances right so the balance of risk is neutral or in your favour. Link to comment Share on other sites More sharing options...
G0ldfinger Posted March 10, 2011 Author Report Share Posted March 10, 2011 NO! Instead it would work as it does for instance in Germany: you aim to buy a place ONCE in your life, when you think you're settled. That way you avoid the BS property market of the UK with "ladders" (that are in fact cliffs) and "flipping" all the time. In which case we are in a new paradigm - and no-one who needs a mortgage to buy a house should ever take one on. Link to comment Share on other sites More sharing options...
BoldAsBrass Posted March 10, 2011 Report Share Posted March 10, 2011 They must be considered an investment the moment you can't walk away from them at any price. Risk management is not about avoiding risk at all costs, it's about getting the timing and circumstances right so the balance of risk is neutral or in your favour. Well I guess so - I must admit I did think about the price of my house going down before I bought it last year. And then I thought 'I hope it does go down and give my kids a change of owning without a millstone around their necks all their lives' Link to comment Share on other sites More sharing options...
Jake Posted March 10, 2011 Report Share Posted March 10, 2011 I find your 'houses are an investment - consider them as an investment - always consider what happens if the price goes down so (presumably) never buy a house if there is a risk it might go down in price (i.e. NEVER buy a house) etc. philosophy' to be a 'funny attitude'. You must spend your life worrying about money. "Paying a mortgage in a house that has negative equity is a burden: financially and psychologically" It doesn't have to be - it's only a burden if you're obsessed about money and the price of the house and 'have you lost money (ohhh NOOOOOOO!)' and so on. My nephew bought a bigger house 3 years ago. Almost certainly it is worth less than he paid for it. He has a wife and two kids, another on the way. He doesn't feel burdened financially - he just pays the mortgage. He is not burdened psychologically by his negative equity - he is quite sanguine about it and realises that moving up (he wants a bigger house in a couple of a years time when no. 3 needs his/her own bedroom) will be easier if prices don't go up. Some people just live their lives and enjoy them. As for extrapolating what has happened in Detroit to draw some sort of absolute conclusion about buying property in general - can't see the relevance myself unless - and I guess this is true - you are hovering over the UK waiting for the armageddon you are convinced is going to occur. I think all Bubb is saying is that there is a time to buy and a time not to buy. 'affordability' is merely a chance to throw money away-if you can afford to do so. We all know the benefits of feelgood my property is my castle, but he warns for some it might turn out to be a dungeon. What might be affordable today, may well become unaffordable tomorrow... I admire your boldness BasB but for me (at least) that attitude might be stupid as... Link to comment Share on other sites More sharing options...
CIGA Posted March 10, 2011 Report Share Posted March 10, 2011 I find your 'houses are an investment - consider them as an investment - always consider what happens if the price goes down so (presumably) never buy a house if there is a risk it might go down in price (i.e. NEVER buy a house) etc. philosophy' to be a 'funny attitude'. You must spend your life worrying about money. "Paying a mortgage in a house that has negative equity is a burden: financially and psychologically" It doesn't have to be - it's only a burden if you're obsessed about money and the price of the house and 'have you lost money (ohhh NOOOOOOO!)' and so on. My nephew bought a bigger house 3 years ago. Almost certainly it is worth less than he paid for it. He has a wife and two kids, another on the way. He doesn't feel burdened financially - he just pays the mortgage. He is not burdened psychologically by his negative equity - he is quite sanguine about it and realises that moving up (he wants a bigger house in a couple of a years time when no. 3 needs his/her own bedroom) will be easier if prices don't go up. Some people just live their lives and enjoy them. As for extrapolating what has happened in Detroit to draw some sort of absolute conclusion about buying property in general - can't see the relevance myself unless - and I guess this is true - you are hovering over the UK waiting for the armageddon you are convinced is going to occur. BAB - your points do deserve credit and in an ideal world where if humans were able to detach emotions maybe you have a case. The cold harsh reality of the fact is that you are not an indication of the general consensus of the populous. When most people see the house they scrimped and scraped for and are doing without other things for drop in value without any idea how long before it is back in positive territory, it WILL have a psychological affect on them - it may even stir up reckless thoughts about how to get out of the situation. As these people talk to each other a herd mentality develops and eventually something occurs - a stampede. People are talking to each other right now about it and if for any reason prices drop further or the debt burden worsens, or both (most likely because of interest rates, higher taxation, pay cuts, job losses, wages not keeping up with inflation etc.) .. watch out for the stampede. Link to comment Share on other sites More sharing options...
Carlton Posted March 11, 2011 Report Share Posted March 11, 2011 NO! Instead it would work as it does for instance in Germany: you aim to buy a place ONCE in your life, when you think you're settled. That way you avoid the BS property market of the UK with "ladders" (that are in fact cliffs) and "flipping" all the time. I like the German model; in fact, I seem to be practicing it myself. I have always despised the term "property ladder." The idea of using equity in a smaller place to buy a bigger place (and hence go deeper in debt instead of extinguishing the debt on the smaller place) always seemed very wrong to me. Your right, property cliff is a great term, because if the market turns, you're in trouble. Link to comment Share on other sites More sharing options...
BoldAsBrass Posted March 11, 2011 Report Share Posted March 11, 2011 When most people see the house they scrimped and scraped for and are doing without other things for drop in value without any idea how long before it is back in positive territory, it WILL have a psychological affect on them - it may even stir up reckless thoughts about how to get out of the situation. As these people talk to each other a herd mentality develops and eventually something occurs - a stampede. Well, it's never happened before. As people talk to each other a siege mentality develops. A 'knuckle down, tighten our belts, hope nothing else happens, hope I get a job soon, something will turn up' attitude. That's what happened in the early 90s when, at one point, 40% of the men in the road I lived in were out of work - including me. You can't get stampedes out of an illiquid housing market. Link to comment Share on other sites More sharing options...
scruffian Posted March 11, 2011 Report Share Posted March 11, 2011 Sudden slump in mortgage lending, lenders reveal: http://www.bbc.co.uk/news/business-12710836 [sorry, i've been lurking...] Link to comment Share on other sites More sharing options...
drbubb Posted March 11, 2011 Report Share Posted March 11, 2011 Sudden slump in mortgage lending, lenders reveal: http://www.bbc.co.uk/news/business-12710836 [sorry, i've been lurking...] Good to see you posting here THAT is a massive drop ! Sudden slump in mortgage lending, lenders reveal The number of new mortgages lent to house buyers slumped by 29% in January compared to December, the Council of Mortgage Lenders (CML) said. At just 28,500 the figure was also 12% lower than in January last year. The CML said the fall was larger than expected at the time of year and due to an "unusual combination of factors".* The figures suggest the property market may be heading for a new downturn in activity due to mortgage rationing and the uncertain state of the economy. "With the effects of last year's government spending cuts beginning to bite, and rising inflation and tax measures putting pressure on household budgets, potential house-buyers are likely to have been discouraged," the CML said. "This, coupled with December's extreme winter weather, and uncertainty over future interest rate rises, has led to a lack of movement in the mortgage market." == == *Such as a significant portion of the population waking up from a property-loving dream, and "smelling the coffee." Link to comment Share on other sites More sharing options...
harvipark Posted March 11, 2011 Report Share Posted March 11, 2011 "This, coupled with December's extreme winter weather, == == Yep, its the weather again!... Link to comment Share on other sites More sharing options...
tinecu Posted March 11, 2011 Report Share Posted March 11, 2011 This won't help prices go up... http://www.home.co.uk/guides/news/story.htm?uk_mortgage_rates_rise_to_highest_level_in_6_months Although some fools will read it as "better get a mortgage now while rates are low".... Then negative equity will plague them for years. Link to comment Share on other sites More sharing options...
John Doe Posted March 11, 2011 Report Share Posted March 11, 2011 *Such as a significant portion of the population waking up from a property-loving dream, and "smelling the coffee." Maybe, but then again, maybe not. It all depends whether it is bank or building society lending. The BoE (bigger sample and more mortgages) reported much higher than expected. Mortgage approvals picked up more than expected in January and mortgage lending rose to its highest in almost a year, Bank of England figures showed on Tuesday. http://uk.reuters.com/article/2011/03/01/uk-jan-mortgage-approvals-up-idUKLNE72001Y20110301 That seems to show a switch away from BSs to Banks. Link to comment Share on other sites More sharing options...
Kurtz Posted March 11, 2011 Report Share Posted March 11, 2011 Maybe, but then again, maybe not. It all depends whether it is bank or building society lending. The BoE (bigger sample and more mortgages) reported much higher than expected. http://uk.reuters.com/article/2011/03/01/uk-jan-mortgage-approvals-up-idUKLNE72001Y20110301 That seems to show a switch away from BSs to Banks. Just to put this bubble and housing costs in perspective. My Gran, 94, bought a five storey house on top of one of the seven hills of Bristol back in the 1960's. Huge garden, triple garage. Did it as a divorcee with a bank loan!!! Paid it off in 4 years and six months. Okay, she had a few students in there, but she was a primary school teacher raising two children on her own. Don't know what these houses would be going for in the boom, probably 650-700k at a guess. Oh, how times have changed. Link to comment Share on other sites More sharing options...
neil324 Posted March 11, 2011 Report Share Posted March 11, 2011 Maybe, but then again, maybe not. It all depends whether it is bank or building society lending. The BoE (bigger sample and more mortgages) reported much higher than expected. http://uk.reuters.com/article/2011/03/01/uk-jan-mortgage-approvals-up-idUKLNE72001Y20110301 That seems to show a switch away from BSs to Banks. The BOE seasonally adjust, the NSA are not widely available but are closer to the CML, there is a thread on HPC about it. I'm going to seasonally adjust the weather i think, or just move to la la land and be done with it. Link to comment Share on other sites More sharing options...
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