P.I.G.S.

Sheikh said:
Negative equity is only relevant if your selling your property.
Ever heard the one about rent money being dead money.
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I get told about it all the time but laugh at the idea. I pay €350 'dead money' a month but I can up and leave in the morning if I so wish.
 
Fair enough btb. Can see how that would work. But demand isn't there and it isn't any kind of solution -mo. Where I live prices have been steady for some time. Ok a smart piece of london is maybe a micro market but the uk model is fine
 
Bar the Bull said:
Sheikh, you haven't addressed my concerns about 100yr mortgages. They are actually close to renting, as assuming you buy at 28, by the end of your working life, you will have paid off very little principal.

The one about rent being dead money is complete horseshit. It got us into this mess.

If renting is dead money, why are you renting money from the bank to buy a house?

Buying an overpriced asset is dead money.

Stamp duty is dead money.

Why would rent be dead money if it costs me less than half of what it costs to pay a mortgage on the same property?
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I am looking at ways that the many thousands of people who are in trouble can keep their homes.
Whether you like it or not rent money is dead money even if it may be better value for some to rent. A lack of regulation got us into this mess.
 
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Sheikh, mortgages are dead money now for those thousands who can't sell - and far, far worse, the capital investment made may be utterly lost if the homes are repo'd by the lenders, which has happened to tens of thousands of people in the US and UK. Europe is not so besotted by home ownership, which, in an era where no job is secure, renting doesn't come with the anxiety of not being able to get rid of your pile, stately or humble, when the job's gone, the kids are growing, and the mortgage company keeps asking for its monthly payments. Not everyone wants to own a house or a flat - I'll be paying around £6,000 p.a. for this flat in lieu of lobbing out eight years' worth of rental money in one go to buy another, where as an older person I'd rather have the fun with the capital. I realise that the Grim Reaper can strike at any age, but with a rather more finite outlook than most on this forum, it suits people of my age to rent and enjoy their dosh. I don't have anyone to leave a pile of bricks to, which is another good reason to rent. Bricks and mortar were always thought to be a brilliant investment with an endless upward curve in financial gain. Most levels of abode have now plateaud, but the fluidity isn't there at the moment among buyers as it was five years ago. There's been a significant upturn in young people renting around Sussex and the UK in general as salaries have failed to increase to any degree, jobs are seen as often fragile, and mortgages incredibly difficult to quality for. In those cases, dead or live, the money isn't there to lump on with.
 
Sheikh said:
I am looking at ways that the many thousands of people who are in trouble can keep their homes.
Whether you like it or not rent money is dead money even if it may be better value for some to rent. A lack of regulation got us into this mess.
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You are looking at ways in which people can keep their homes, but as Clive mentions, things are so bad that 100yr mortgages aren't going to help. 100yr mortgages or 1000yr mortgages are still greater than interest only loans.

And although your idea of fixed rate loans has some merits, very few people would be able to afford paying 6%+ now. In fact if they had been pushed in 2005, fixed rates would have been higher back then and the hundreds of thousands on trackers of c. 2.5% now would be snookered.

I don't get the idea that rent is dead money; never have, never will. You are renting money off the bank to buy a house. You are taking a massive risk to buy a house. There are benefits in paying a mortgage (you "own" a bit more equity in your house after each month). But you are paying a huge amount of interest to do so. With the interest you save on not paying a mortgage, not to mind the capital depreciation you avoid, you can put €500 a month into a college account for your kids.

My mother must have said to me that rent is dead money a hundred times over the past 15 years. She is an economics teacher! And she has finally admitted that she was wrong.
 
So with your Socalist hat on (borrow one) and bearing in mind that the Banks are pretty much owned by the people, what would need to happen for the many thousands who are losing their homes or going to lose them, (along with their credit rating etc) to keep them ?

Any merit in debt forgiveness ? personally I think it would be impossible to work and with the amount of bitching and moaning that would go on re: fairness, political suicide.

There must be a solution besides letting it all run its course. If the system can't work for all the people than the system doesn't work.
 
Sheikh, mortgages are dead money now for those thousands who can't sell - and far, far worse, the capital investment made may be utterly lost if the homes are repo'd by the lenders, which has happened to tens of thousands of people in the US and UK. Europe is not so besotted by home ownership, which, in an era where no job is secure, renting doesn't come with the anxiety of not being able to get rid of your pile, stately or humble, when the job's gone
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And millions of homes are not being repossessed and are sitting on something that a lot of people would want to buy

What is so great about the european model of extensive renting?

I bought in 85 and upgraded in 96 Two of the best times tohave moved economically (By chance I will admit). Im laughing. The mortgage is nearly gone and whats left is tiny. Repayments now ouldnt rent a garage in my street.Could sell my property pretty quickly too if need be

Would I have rather rented..not a fucking chance
 
Any merit in debt forgiveness ?
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Never

Write off peoples mortgages and let them have an asset at a knockdown? Ludicrous. What about those that didnt overstretch themselves and get into stupid greedy speculation? Those that in a rather old fashioned way bought within their means?

I suppose the goverment should pay off my credit card too then?

Ridiculous idea.
 
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Over the last few generations it has generally been the case over any given 10 year period that there will be significant wage inflation or significant house price inflation or generally both. When you've taken your maximum mortgage out, after a few years the initial pain tends to weaken and your "investment" has paid in spades. I don't get the idea that it does not count as an investment unless you intend to sell it. Paper profit made on the house does act as a source of financial security in stressed personal times, and funds can be raised on the capital.

Rent will generally speaking have some relationship with wage inflation and property prices so while the pain may never be so severe it also won't wear off.

The challenge to this is we are now in a period of wage deflation and property devaluation which sort of screws up the trend. I'm guessing the class of 2007 and 2008 (maybe a little of 2006 and 2009, maybe even an extra year) house purchasers will be the only ones in the last 60 years not to have a clappy happy house purchase scenario after 10 years. Which makes it a pretty good blind bet.
 
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I think you are being way too optimistic, Mel.

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Bar the Bull said:
I am a socialist.

How many people have lost their homes?
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Me too, Champagne Variety.

I don't know, are you suggesting it's not a major problem ? How many have left the Country, should they be included, at least the ones that had to sell and leave ?

end of 2010, 44,508 mortgage accounts, or 5.7 per cent of residential mortgages, were in arrears of at least 90 days,
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ESRI have warned that up to 120,000 will leave the country by the end of 2011
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That graph is in 2006 prices, my theory would look better in nominal prices.

Two identical houses are available on a road one for sale one for rent.
20 Year 100% mortgage costs €10k per annum - maintenance cost not applicable to renting €1500
€6000 per year rent on the other.

If you apply a discount rate of, say,the average annual inflation rate over the 20 years to the house, and assume rent and maintenance cost will increase by the same rate, subtract the cost of renting the house over the twenty years from the discounted cost paid for the house and the average annual ROI on the discounted value of the house twenty years later will work out substantially better than most other traditional savings schemes investment. Most savings schemes don't provide you with accommodation or other auxiliary benefits.

A little simplistic but the the general idea is there.

I'm not working it out, I'm open to being shown to be incorrect.
 
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Very simple assessment:-

1) Say you rent a house that is valued at €300,000 paying a rent of €950 per month which is about where the market is.

Over 20yrs you pay 950 €228,000 on a simple straighforward basis. You save / invest the other amount of €950 at say 3% compound interest. This would return you 52,443 after dirt (27%) and a total amount of €280,443.

2) You buy and get the mortgage for the full amount over 20 yrs - you pay €455,500 (at 4.5%) €1,897.95 per month for 240 months, ie the same amount as above.

If your house is not worth more than €280k after 20 yrs then option 1 is for you.
In the round though I cannot see the house depreciating in value over a twenty year period can you???
 
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I think the maths is a little screwed there but somehow you got the right answer

Cost of buying house 455,000
minus cost of rent -228,000
add cost of investment opp forgone 52,000 (figure looks odd but I'll accept it)

Actual Cost of House 279,000 so if your happy with 0% discount rate 280,000 would need to be the final value before it's marginally worth your while. I'd add maybe 30 - 40k to that for maintenance, maybe even 50 - 60k.

Edit: Ah, your maths wasn't screwy, I see what your at.
 
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Melendez said:
I think the maths is a little screwed there but somehow you got the right answer

Cost of buying house 455,000
minus cost of rent -228,000
add cost of investment opp forgone 52,000 (figure looks odd but I'll accept it)

Actual Cost of House 279,000 so if your happy with 0% discount rate 280,000 would need to be the final value before it worth your while. I'd add maybe 30 - 40k to that for maintenance, mabe even 50 - 60k.
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What do I get B- or C+??????
 
You get a B. You only get an A if you have a chart. Bar The Bull will provide a chart that will have us both downgraded to a D-.
 
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Melendez said:
I think the maths is a little screwed there but somehow you got the right answer

Cost of buying house 455,000
minus cost of rent -228,000
add cost of investment opp forgone 52,000 (figure looks odd but I'll accept it)

Actual Cost of House 279,000 so if your happy with 0% discount rate 280,000 would need to be the final value before it's marginally worth your while. I'd add maybe 30 - 40k to that for maintenance, maybe even 50 - 60k.

Edit: Ah, your maths wasn't screwy, I see what your at.
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What does this prove?
 
Sheikh said:
Any merit in debt forgiveness ? personally I think it would be impossible to work and with the amount of bitching and moaning that would go on re: fairness, political suicide.

There must be a solution besides letting it all run its course. If the system can't work for all the people than the system doesn't work.
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Re: Debt forgiveness.

Deuteronomy 15. No, I'm not 'religious' but I do remember things.
It's about the Jubilee year -- worth reading up. Try google if you haven't the translation of the original.

Quite ahead of its time - so far ahead it's been forgotten!
:)
 
House prices need distinguishing from land prices. No need to get picky here, either. A house depreciates year by year as it gets older & it's no different from a car in that respect.

Take your house in the city suburb & put it out in the sticks. Or vice versa what happens to the 'house' price? F*ck all.

To re-coin a phrase, It's the land, stupid. :)
 
On The Bridle said:
Nothing really - only that if there was to be any modest increase in house / property prices in the next 20 years then in the long run you would be better off buying...
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Having you factored in the cost of up and leaving at will versus having to sell and re-buy at the higher market value?
 
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