JerichoHill
Bedrock of Knowledge
Poor is how I saw people living in wooden shacks without power or running water in the D.R.
When there are blood on the street, buy property
- Thread starter Ramius75
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Poor is how I saw people living in wooden shacks without power or running water in the D.R.
JerichoHill
Bedrock of Knowledge
@@Mise;
Obviously, deducting things like food, transport, bills, luxury goods, etc, you're left with "what should I do with the money I'm spending on rent?" So a smart individual would take their rent and find a mortgage which charges the same amount in monthly repayments. That way, you end up spending the same, and you get to keep the equity in the house at the end of it.
--Rents no longer come close to mortgage payments now in the US. So that doesn't work.
Historically, mortgage repayments and rent on the same property are roughly equal. An investor would use rent to pay the mortgage, build up equity in the property, and profit from the difference in price of the house at sale and at purchase.
--Historically, home prices appreciate about 4%...the rate of inflation. So a home is, historically, a store of value, not a gainer of value.
So you're absolutely right, it all comes down to what the best decision is for the individual. But rules of thumb such as "0% down = bad" are just as destructive as "homeownership > renting".
--0% down is bad, because it encourages reckless behavior. Thats how I feel about it, such loans warp the traditional incentives of risk/reward
Obviously, deducting things like food, transport, bills, luxury goods, etc, you're left with "what should I do with the money I'm spending on rent?" So a smart individual would take their rent and find a mortgage which charges the same amount in monthly repayments. That way, you end up spending the same, and you get to keep the equity in the house at the end of it.
--Rents no longer come close to mortgage payments now in the US. So that doesn't work.
Historically, mortgage repayments and rent on the same property are roughly equal. An investor would use rent to pay the mortgage, build up equity in the property, and profit from the difference in price of the house at sale and at purchase.
--Historically, home prices appreciate about 4%...the rate of inflation. So a home is, historically, a store of value, not a gainer of value.
So you're absolutely right, it all comes down to what the best decision is for the individual. But rules of thumb such as "0% down = bad" are just as destructive as "homeownership > renting".
--0% down is bad, because it encourages reckless behavior. Thats how I feel about it, such loans warp the traditional incentives of risk/reward
So what exactly does it take to get a mortgage for, say, a $100,000 home these days? Have they upped their credit score standards, slashed some of those no money down mortgages, asked for cosigners? Or must we wait to see how the latest housing downfalls will impact the banks?
There's no lack of lending opportunities. It boils down to your credit and as long as you're not going over 417k rates are low for quality borrowers. If one is subprime I'm sure they can talk to the FHA. The piggyback loan is non existant though people can still secure loans with investment assets (typically 40% down).
U.S. 30-year amortized mortgage rates dropped to an average of 6.33 this week. That would be $620.93/month on a $100k loan.
Bankrate's mortgage calculator
U.S. 30-year amortized mortgage rates dropped to an average of 6.33 this week. That would be $620.93/month on a $100k loan.
Bankrate's mortgage calculator
Interesting...I've been keeping track of my credit...though I do worry that the student loans on there as well as leftover credit card debt (thanks to student loans not covering such items related to study), I think they'd see me as overextended. Now if only they'd see what I'm currently paying in rent, maybe they'd understand the pain. 
But on stocks vs. real estate, for investment, it's stocks, hands down. More so if we're also considering investing abroad, something US investors seem quite hesitant to do.
But on stocks vs. real estate, for investment, it's stocks, hands down. More so if we're also considering investing abroad, something US investors seem quite hesitant to do.
Again from Bankrate how your score is calculated.
http://www.bankrate.com/brm/news/credit-scoring/20031104a3.asp
Aha, that's something they don't put on the credit reports. Thanks, Whomp!
Now back to your regularly scheduled thread.
Now back to your regularly scheduled thread.
Mise
isle of lucy
I.e. all you lose is the interest on the mortgage. With renting you lose everything you pay out.
Mise
isle of lucy
Well that sure showed me... I guess I can disregard all those so-called fundamentals, because Mr Economist doesn't seem to think they exist...Did you even read my post? Or did you just stop at the first line?
So? Where else can you get access to so much capital as in the property market?
The point of property investment is that banks are willing to lend heavily on property, because it represents excellent collateral, and the people who borrow for property are (in theory at least) using it as a home first and foremost. Hence it makes a safe lend.
You could never borrow $100,000 to invest in the stock market, so saying that the stock market has greater returns ignores the fact that you can't access such great returns on as large a scale as you can access the more modest returns on property.
Did you even read the example you quoted?
Yeah, no kidding. But by renting and investing in traditional stocks, you lose a hell of a lot more, which was my point.
Well I've been told...
IF the market tanks. The UK market is fuelled by fundamentals -- you know, the ones you ignored earlier -- and as long as those fundamentals remain (and there's no reason to suggest that they won't), there is little chance of even 100% mortgage owners entering negative equity.
JerichoHill
Bedrock of Knowledge
Incorrect. Since the mortgage monthly payment is greater than the rent, you could invest the difference.
innonimatu
the resident Cassandra
- Joined
- Dec 4, 2006
- Messages
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Talking about fundamentals in the UK:
Have things been "sorted out" in the 6 months since this statement? Or have they been simply patched over?
JerichoHill
Bedrock of Knowledge
They were saying that about 2 years ago here.
FWIW, Britians housing bubble may be quite huge. Additionally, Northern Rock just had a run on its banks that was so great the British government had to step in. Fundamentals indeed.
20% growth is OFF the fundamentals-based growth rate of equaling inflation. Thats the problem. When you go off the trendline to such a degree, there has to be consequences.
I find it quite funny that you dont think I understand economic fundamentals.
robo-snickers
frisco pimp
when there is blood on your bed, i popped your cherry!
Moderator Action: Yeah, right. Take another vacation.
Please read the forum rules: http://forums.civfanatics.com/showthread.php?t=422889
Moderator Action: Yeah, right. Take another vacation.
Please read the forum rules: http://forums.civfanatics.com/showthread.php?t=422889
Because that had anything to do with the thread....
Anyway, if you did have a standard home that appreciated 4% year over year for thirty years and a mortgage that averaged 7% for the same thirty years, you'd have to do the calculation and you may even be ahead on it after the term, but you wouldn't have that total 4% year over year gain given the interest expenses. But there's a very small chance it'd beat out inflation over that same time period.
Of course, that's the average. There are places and properties and other things that would improve the value of the property, as well as timing when you buy and sell, so on, so forth. But that'd probably would take more effort than socking away money on an index fund and letting it collect over those thirty years, on average.
Of course, since nobody's ever average, you'd have to do the work yourself and make the decisions yourself.
Anyway, if you did have a standard home that appreciated 4% year over year for thirty years and a mortgage that averaged 7% for the same thirty years, you'd have to do the calculation and you may even be ahead on it after the term, but you wouldn't have that total 4% year over year gain given the interest expenses. But there's a very small chance it'd beat out inflation over that same time period.
Of course, that's the average. There are places and properties and other things that would improve the value of the property, as well as timing when you buy and sell, so on, so forth. But that'd probably would take more effort than socking away money on an index fund and letting it collect over those thirty years, on average.
Of course, since nobody's ever average, you'd have to do the work yourself and make the decisions yourself.
classical_hero
In whom I trust
You must think of it in terms of return on investment. How much of the house price do you actually pay up front? I would approximately say that it could be about 10% of the price in total (just a rough guess because the actual amount will vary), so that is a small fraction of the total. So all you need is smaller increases in prices and of rent (if you are solely for investment) to see a good return on your investment.
Now lets look at stocks. How much of price of stocks do you have to pay? You have 100% of the price, which means you are much more exposed to the risk than you are in the house. Also what happens to a stock if the company goes bankrupt? You lose everything. At least with houses that if you lose the house, you still have the land and you can have insurance on the house just in case that happens and it is quite cheap to do that, whereas with stocks you lose all your money should bad things happen to a company. This is what happened to ENRON and thousands of people lost life savings as a result of it, but this is a situation that would not happen with property.
@Mise, JH is forgetting the ROI of each investment. The less you invest means that you can afford to have less of a return on the whole investment, since you rarely invest 100% of the money into houses. So a 1% ROI for a house is actually bigger than a 6% ROI on stocks, since the initial invest means that the actual ROI (Assuming 10% initial invest in my example), mean that the actual ROI is 10% of the initial investment, which is the most important thing to be looking at when investing, is the ROI on what you have invested, not necessarily of the total investment considering of the investment, since houses you should never buy a house with 100% of you paying the investment. So if you have $100,000 in shares you will get $100,00 of shares of your investment, if you have $100,000 in houses then you will have $1,000,000 in houses, mean your investment is much bigger. This means that only a 1% ROI on the houses is $10,000 whereas Shares is on $6,000, meaning that you have and extra $4,000 even though the ROI on the total investment is much smaller for houses, but your investment is also smaller than what you need for shares.
I hope that does explain the economics of houses, to an Economist. Shares are not always the better option.
Mise
isle of lucy
Which, as I said, is a tiny amount...
And it's not ALWAYS true that the mortgage payments are greater than the rent. That hasn't been the case in the UK for the past decade.
The fundamentals I were talking about were in my last post. Shall I repeat them, since people seem to have such a short memory?
"And what if it's fuelled by fundamentals, such as fewer new homes being built than new families being started? A rise in the number of single person households? An influx of Eastern European migrants? A generous non-domicile tax regime encouraging filthy rich foreigners to base themselves in the country, driving up house prices in the swankier suburbs?"
NONE of these are going away any time soon. The non-dom tax status change will affect the less well off non-doms, but the filthy rich ones (the ones stoking prices in London) won't just up and leave because of a few grand extra they have to pay.
And, just so you know, had there been a recession 7 years ago, house prices would have shot up by just as much as soon as we came out of it.
You know as well as I do the US is fundamentally different from the UK, in that the US has plenty of land, whereas the UK doesn't, and is reluctant to build new houses on the land that is available. Hence the housing shortage in the UK.
There's no denying that nominal house prices in the UK have been rising faster than they really ought to be. But the real cost of a house -- the tag price plus the cost of the mortgage -- is pretty much where it should be. Now that interest rates have gone up, mortgage costs have risen, meaning that people could no longer afford to borrow, say, 4x their salaries, and have had to go back to more traditional levels of 2.5x mortgages. This has led to a fall in the nominal tag price of a house. But, as you well know, supply and demand for markets as a whole care about real prices, i.e. tag price + interest. This has remained pretty much the same (it's still currently undergoing adjustment so hasn't stabilised yet), indicating that neither demand nor supply has changed appreciably since the credit crunch.
You can check this for yourself, if you're not convinced. Otherwise, please don't talk about the UK housing market as if you know anything about it.
........What has the run on Northern Rock got to do with the UK housing market? You said it yourself, it was to do with the credit crunch, which originated in the US mortgage market (which, incidentally, is different from the US housing market). Just because Northern Rock sell mortgages doesn't mean that house prices are going to collapse.......
1. Who said anything about 20% growth? It's been around 10-12% for the past decade or so. Obviously it's different in different parts of the country. I think London had something close to 20%, but that really is something exceptional. It's still based on fundamentals though. Not enough demand to meet supply. I honestly don't know how you can argue against that. Which is lucky, because, so far, you haven't.
2. Once again, HOW can you possibly say that the fundamentals in this country indicate price rises similar to inflation, when you've flatly ignored the fundamentals in this country??
I'll post them again, shall I?
"And what if it's fuelled by fundamentals, such as fewer new homes being built than new families being started? A rise in the number of single person households? An influx of Eastern European migrants? A generous non-domicile tax regime encouraging filthy rich foreigners to base themselves in the country, driving up house prices in the swankier suburbs?"
When all of those things are sorted, house prices will go back to their historic growth rate in the long term. This is a short term adjustment to reflect a change in demographic. Our population (both number of people and number of households) has increased steadily, but the number of new houses being built hasn't kept up. Surely you can see that...
Exactly! I mean, this is exactly what PE groups do, except with companies instead of houses.
JerichoHill
Bedrock of Knowledge
Let me also point out that homes carry maintenance expenses and property taxes, whereas purchases costs carries two non-recurring expenses (fee to buy and tax when you sell (generalizing).
JerichoHill
Bedrock of Knowledge
@@classical_hero
You must think of it in terms of return on investment. How much of the house price do you actually pay up front? I would approximately say that it could be about 10% of the price in total (just a rough guess because the actual amount will vary), so that is a small fraction of the total. So all you need is smaller increases in prices and of rent (if you are solely for investment) to see a good return on your investment.
--Homes, like stocks, have no guarantee on a return to value. Check out the current mess in the US for proof on that.
Now lets look at stocks. How much of price of stocks do you have to pay? You have 100% of the price, which means you are much more exposed to the risk than you are in the house.
--This implies that say, Microsoft, is less or more risky than buying a home.
Also what happens to a stock if the company goes bankrupt? You lose everything. At least with houses that if you lose the house, you still have the land and you can have insurance on the house just in case that happens and it is quite cheap to do that, whereas with stocks you lose all your money should bad things happen to a company.
--If you default on your mortgage and get foreclosed you lose your house and then the banks come after you for deficiency judgements. Granted you may be able to sell the home for a loss (short sale), but the IRS will come after you for the difference between what you sold it for and your outstanding loans. Insurance doesn't help you keep a house, it insures it from fire/flood etc.
This is what happened to ENRON and thousands of people lost life savings as a result of it, but this is a situation that would not happen with property.
--So you're cherry-picking ONE stock example? Okay, then I'll cherry pick everything on Ben's Housing Bubble Blog as counter claim.
--ROI is not the single most important thing to look at when investing. ROI doesn't mean how much you're getting back. What is your expectation at what you're getting and how does that coincide with financial reality.
--20% annual price rises cannot be sustained. When this was occurring around DC I told my friends not to buy. They bought and now most are underwater in their mortgage. When you buy when everyone else is buying, you're most likely buying at the top.
I hope that does explain the economics of houses, to an Economist. Shares are not always the better option.
--Aside from a primary residence, the stock market has been the better option. Even the housing buffs who tout the crazy market returns of 01-04 don't mention that the market had higher returns.
You must think of it in terms of return on investment. How much of the house price do you actually pay up front? I would approximately say that it could be about 10% of the price in total (just a rough guess because the actual amount will vary), so that is a small fraction of the total. So all you need is smaller increases in prices and of rent (if you are solely for investment) to see a good return on your investment.
--Homes, like stocks, have no guarantee on a return to value. Check out the current mess in the US for proof on that.
Now lets look at stocks. How much of price of stocks do you have to pay? You have 100% of the price, which means you are much more exposed to the risk than you are in the house.
--This implies that say, Microsoft, is less or more risky than buying a home.
Also what happens to a stock if the company goes bankrupt? You lose everything. At least with houses that if you lose the house, you still have the land and you can have insurance on the house just in case that happens and it is quite cheap to do that, whereas with stocks you lose all your money should bad things happen to a company.
--If you default on your mortgage and get foreclosed you lose your house and then the banks come after you for deficiency judgements. Granted you may be able to sell the home for a loss (short sale), but the IRS will come after you for the difference between what you sold it for and your outstanding loans. Insurance doesn't help you keep a house, it insures it from fire/flood etc.
This is what happened to ENRON and thousands of people lost life savings as a result of it, but this is a situation that would not happen with property.
--So you're cherry-picking ONE stock example? Okay, then I'll cherry pick everything on Ben's Housing Bubble Blog as counter claim.
--ROI is not the single most important thing to look at when investing. ROI doesn't mean how much you're getting back. What is your expectation at what you're getting and how does that coincide with financial reality.
--20% annual price rises cannot be sustained. When this was occurring around DC I told my friends not to buy. They bought and now most are underwater in their mortgage. When you buy when everyone else is buying, you're most likely buying at the top.
I hope that does explain the economics of houses, to an Economist. Shares are not always the better option.
--Aside from a primary residence, the stock market has been the better option. Even the housing buffs who tout the crazy market returns of 01-04 don't mention that the market had higher returns.
JerichoHill
Bedrock of Knowledge
@@Mise
And it's not ALWAYS true that the mortgage payments are greater than the rent. That hasn't been the case in the UK for the past decade.
--That is the case in the US.
"And what if it's fuelled by fundamentals, such as fewer new homes being built than new families being started? A rise in the number of single person households? An influx of Eastern European migrants? A generous non-domicile tax regime encouraging filthy rich foreigners to base themselves in the country, driving up house prices in the swankier suburbs?"
NONE of these are going away any time soon. The non-dom tax status change will affect the less well off non-doms, but the filthy rich ones (the ones stoking prices in London) won't just up and leave because of a few grand extra they have to pay.
--Why aren't more homes being built if there's such a imbalance between supply and demand?
And, just so you know, had there been a recession 7 years ago, house prices would have shot up by just as much as soon as we came out of it.
--Proof?
You know as well as I do the US is fundamentally different from the UK, in that the US has plenty of land, whereas the UK doesn't, and is reluctant to build new houses on the land that is available. Hence the housing shortage in the UK.
--Condos and Townhomes take up alot of horizontal space? They take up vertical space.
There's no denying that nominal house prices in the UK have been rising faster than they really ought to be. But the real cost of a house -- the tag price plus the cost of the mortgage -- is pretty much where it should be. Now that interest rates have gone up, mortgage costs have risen, meaning that people could no longer afford to borrow, say, 4x their salaries, and have had to go back to more traditional levels of 2.5x mortgages. This has led to a fall in the nominal tag price of a house. But, as you well know, supply and demand for markets as a whole care about real prices, i.e. tag price + interest. This has remained pretty much the same (it's still currently undergoing adjustment so hasn't stabilised yet), indicating that neither demand nor supply has changed appreciably since the credit crunch.
--Is creative financing appearing in England?
........What has the run on Northern Rock got to do with the UK housing market? You said it yourself, it was to do with the credit crunch, which originated in the US mortgage market (which, incidentally, is different from the US housing market). Just because Northern Rock sell mortgages doesn't mean that house prices are going to collapse.......
--The housing and mortgage markets are highly related, because what Northern Rock got in trouble with was buying MBS's
2. Once again, HOW can you possibly say that the fundamentals in this country indicate price rises similar to inflation, when you've flatly ignored the fundamentals in this country??
--Historically, that is what homes have kept up with in developed economies
When all of those things are sorted, house prices will go back to their historic growth rate in the long term. This is a short term adjustment to reflect a change in demographic. Our population (both number of people and number of households) has increased steadily, but the number of new houses being built hasn't kept up. Surely you can see that...
--If everyone in this game though that, you'd see a glut of buyers and few sellers, which will drive up price. However, this price will be based on exurbance and not the long-term trend (lets be honest with how many folks have financial timeline expectations longer than even a year).
And it's not ALWAYS true that the mortgage payments are greater than the rent. That hasn't been the case in the UK for the past decade.
--That is the case in the US.
"And what if it's fuelled by fundamentals, such as fewer new homes being built than new families being started? A rise in the number of single person households? An influx of Eastern European migrants? A generous non-domicile tax regime encouraging filthy rich foreigners to base themselves in the country, driving up house prices in the swankier suburbs?"
NONE of these are going away any time soon. The non-dom tax status change will affect the less well off non-doms, but the filthy rich ones (the ones stoking prices in London) won't just up and leave because of a few grand extra they have to pay.
--Why aren't more homes being built if there's such a imbalance between supply and demand?
And, just so you know, had there been a recession 7 years ago, house prices would have shot up by just as much as soon as we came out of it.
--Proof?
You know as well as I do the US is fundamentally different from the UK, in that the US has plenty of land, whereas the UK doesn't, and is reluctant to build new houses on the land that is available. Hence the housing shortage in the UK.
--Condos and Townhomes take up alot of horizontal space? They take up vertical space.
There's no denying that nominal house prices in the UK have been rising faster than they really ought to be. But the real cost of a house -- the tag price plus the cost of the mortgage -- is pretty much where it should be. Now that interest rates have gone up, mortgage costs have risen, meaning that people could no longer afford to borrow, say, 4x their salaries, and have had to go back to more traditional levels of 2.5x mortgages. This has led to a fall in the nominal tag price of a house. But, as you well know, supply and demand for markets as a whole care about real prices, i.e. tag price + interest. This has remained pretty much the same (it's still currently undergoing adjustment so hasn't stabilised yet), indicating that neither demand nor supply has changed appreciably since the credit crunch.
--Is creative financing appearing in England?
........What has the run on Northern Rock got to do with the UK housing market? You said it yourself, it was to do with the credit crunch, which originated in the US mortgage market (which, incidentally, is different from the US housing market). Just because Northern Rock sell mortgages doesn't mean that house prices are going to collapse.......
--The housing and mortgage markets are highly related, because what Northern Rock got in trouble with was buying MBS's
2. Once again, HOW can you possibly say that the fundamentals in this country indicate price rises similar to inflation, when you've flatly ignored the fundamentals in this country??
--Historically, that is what homes have kept up with in developed economies
When all of those things are sorted, house prices will go back to their historic growth rate in the long term. This is a short term adjustment to reflect a change in demographic. Our population (both number of people and number of households) has increased steadily, but the number of new houses being built hasn't kept up. Surely you can see that...
--If everyone in this game though that, you'd see a glut of buyers and few sellers, which will drive up price. However, this price will be based on exurbance and not the long-term trend (lets be honest with how many folks have financial timeline expectations longer than even a year).
I did exclude all of that. Just like I excluded taxes from investments, however they may be applied and where they're applied. They vary by location and can vary greatly, so I'd rather not try to dive into that. Suffice it to say, if a person does the research, they should be able to get a rough idea of where they could come out ahead.
But many don't, or it does get too complicated and time-consuming for a person to attempt to plan, so that's why they pay other people to figure it out for them! Not a bad choice of work.
