Thought Id start this one going because its rather dead on this board at the moment and I suppose all my usual muckers are either at the Stella tennis event watching Dim Tim (lose again) or at Henly Regatta eating cucumber sandwiches (they wish,...NOT).

Anyway please feel free to just talk to yourself blast away and let it go on any company or subject you wish. Just wish Id thought of this one before.

cheers GF.

LO's Marson: The 'greater fool theory' is driving the housing market


by Paul Marson on Oct 07, 2013 at 09:44


http://www.citywire.co.uk/wealth-manager/los-marson-the-greater-fool-theory-is-driving-the-housing-market/a707548?ref=wealth-manager-latest-news-list

LO's Marson: The 'greater fool theory' is driving the housing market
The housing bubble of 1989 peaked at a house price to income ratio of 5.0, followed by a 13% fall in the average house price in the early 1990s. The previous bubble, in the early 1970s, precipitated the secondary banking crisis and the inception of the Banking Act.

The British know a thing or two about housing bubbles but still propagated a bubble in 2007 which peaked at 5.7 times income, with the subsequent crash once again exposing the weakness in the banking system.

Have we learned? It would appear not! The current price to income ratio is 4.6, just shy of the late 80s peak and a worrying starting point for the traditional UK housing-led economic recovery, fed this time by mis-timed government incentives in the form of “Help to Buy”.

Housing, as we have learned, is a risky and relatively illiquid asset and should, on that basis, provide a fair margin of safety, or risk premium, relative to its funding cost. The return on residential property can be thought of as the net rental yield [allowing for maintenance costs, void periods etc.] plus any growth in the rent plus any change in the capital value of the property.

Where do we stand today? Well, the 6.1% national average rental yield equates to a 5% net rental yield. Rents have grown approximately 2.5% annually over the last 10-15 years and, if we assume that the price to income ratio reverts steadily to its long run median level over the next 5 years we lose 3.8% annually in capital value.

Adding the three components we have 5% plus 2.5% less 3.8%, giving a return of just 3.7%. With the current 5 year 75% loan to value mortgage rate at 5.5%, the real cost of the mortgage after inflation becomes 2.5%. The margin of safety offered by UK housing is, therefore, only 1.3% - that is, 3.8% minus 2.5%.

Whilst not negative, as it was at the 1989 and 2007 market peaks, it is meagre compensation for risk. Moreover, prices do not have much further to rise before the market moves into negative risk premium territory – with the same implications as in previous bubbles. The situation in central London, where the price to income ratio is 6.5 versus a long-run average of 4.5, is even worse. With a 4.8% gross yield, the margin of safety on London property is already negative at minus 4.5%.

Aside from the fact that housing overvaluation effectively transfers wealth from the young to the property-owning old, when the obligation for government debt is going the other way, the housing market is being held aloft on the expectation that prices will rise indefinitely. It is an exemplary demonstration, as only the UK housing market knows, of the “greater fool theory” of asset pricing: someone will always give you more than you paid. Nothing changes…

Paul Marson is the chief investment officer of Lombard Odier.

now try answering a very simple question .....
would you rather nothing was done to help young(er) first time buyers?

a 2 or 3 letter word answer should not be beyond even you, though you have been asked twice already but the grey cells (one?) have clearly not registered

Who appointed you maximum thread leader?

Secondly, what do you call "help" for first time buyers??

your call ... what help would you suggest, if any .... you're good - or at least you think you are - at posting negative and unconstructive stuff, so now try something different

You call help for buyers (not just first timers) to get mortgages of up to £600k anything other than a ramp?

Please explain, as you keep asking for answers to situations that don't exist.

a pathetic non-response as expected

firstly, i am completely in favour of people owning their own homes rather than renting
secondly, i am under the impression, perhaps wrongly, that this proposed scheme is aimed at first-time buyers, though £600k (£400k in scotland) sounds unnecessarily high

the proposed scheme may well be flawed to a greater or lesser extent, but i am not qualified to judge, but i have yet to hear anyone other than fred come up with even a possible alternative .... you certainly haven't

so let's try a simpleton's question yet again .... are you or are you not in favour of some kind of financial help for first time buyers?

i won't overload your grey cell with a supplementary

.

The last question you asked of MK.

Not at the price you are suggesting.

Perhaps, up to £200000 but certainly not £600,000.

I think the latter is criminal and is a despicable party political throw away.


Think the many "low" earners should be help to decent living economical accommodation on the way to self purchasing.

May be possible to arrange that part of the rent could be diverted to building up a suitable deposit for private purchase.

But there is nothing virtuous about owning your own property and in much of Europe "think" it is still less than the norm.

The last question you asked of MK.

Not at the price you are suggesting.

Perhaps, up to £200000 but certainly not £600,000.

I think the latter is criminal and is a despicable party political throw away.


Think the many "low" earners should be help to decent living economical accommodation on the way to self purchasing.

May be possible to arrange that part of the rent could be diverted to building up a suitable deposit for private purchase.

But there is nothing virtuous about owning your own property and in much of Europe "think" it is still less than the norm.

...

I think my irritation is showing.

Get the dum dums out of storage.

9-)

In London, £200k won't buy you much except one room. A figure of £400k would be more realistic, but still would not get you much.

You can still buy flats in London for £200k, but agreed, you wont get much.

http://www.rightmove.co.uk/property-for-sale/find.html?searchType=SALE&locationIdentifier=REGION%5E87490&insId=1&radius=0.0&displayPropertyType=&minBedrooms=&maxBedrooms=&minPrice=&maxPrice=200000&retirement=false&partBuyPartRent=false&maxDaysSinceAdded=&_includeSSTC=on&sortByPriceDescending=&primaryDisplayPropertyType=&secondaryDisplayPropertyType=&oldDisplayPropertyType=&oldPrimaryDisplayPropertyType=&newHome=&auction=false




As for the £4-600k merchants...lol



Check out the going rates:

Source: http://www.payscale.com/research/UK/Location=London-England%3a-London/Salary

As I said £200k won't buy you much.

fred - i'll ignore your political throw-aways as they're just predictable and dull ....

there is indeed a view that renting is better than buying, but i don't subscribe to it, even though i am also a landlord

May be possible to arrange that part of the rent could be diverted to building up a suitable deposit for private purchase
there are already schemes along those lines, though i do not know the details

We live in a low wage long hours economy, with the unrealistic expectation that owning one's own home is a given for virtually everyone... which is nothing short of nuts.

Wake up middle Englanders.

Cynic,

Not a vested interest then.

I see the need of allegiance.


Hays,



Then they can get on their bikes and move or doss in a doorway, they don't have to be bailed out or secured by the state.

We were a nation that had low expectation of home ownership. It was expected that people would save for Yeats for a deposit. That has changed and now people expect to buy a property much sooner. The reason why it matters is that rented property is so expensive. In the rest of Europe, renting is far more common.

Expectancy, is often followed by disappointment and rentals returns can be returned by market forces to realistic levels.

The UK is now a shit hole full immigrant beggars

The UK is now a shit hole full immigrant beggars