Are we wasting our time, (and money) with gold.

[KDave]

There appears to be way more downside than upside for UK property as an investment. I do not think house prices can keep rising, certainly nothing like we have seen in the past 20 years while wages are stagnant and economic growth is near zero. The trend is down for both, especially given the likelihood a recession is not too far away.

If it is not wages or economic growth then consider cheap credit as the driver - we are about as cheap as you can get in regards to borrowing today. No upside here. 

If cheap credit is not the driver then perhaps demographics will win out and when the largest and wealthiest generation in history begin to die off, oversupply and lower demand will be the driver...

Where is the upside?

If you are buying to live in it, then yes, property is a good investment. Owning a house outright significantly cuts living costs compared to renting. A property owned outright providing income is a good investment. A leveraged bet on property does not appear to be a good investment given the lack of potential upside and the potentially huge downside. Any income provided by a leveraged property is not likely to last considering recent changes in the interest rate environment.

This downside will likely take years to unfold. People buying property to live in now should perhaps consider their house as somewhere they will spend the rest of their life. I certainly will be doing this in two years time. The proverbial ladder is long gone. 

[Scuzzle]

I think you have to be a property buyer and not a renter if possible, I think there is some mileage in these death of the dollar scenarios and with the oil price crisis if the banks think for one second that paper money is in trouble the interest rate switch will be flipped in order to get as many mortgage defaults as possible and to hoover up hard assets like property and this is the reason property is such a good investment of you can afford to but it outright, it is a hard tangible asset which is the same reason we like silver and gold.

[HighlandTiger]

13 minutes ago, KDave said:

If cheap credit is not the driver then perhaps demographics will win out and when the largest and wealthiest generation in history begin to die off, oversupply and lower demand will be the driver...

Somehow you appear to be claiming, that when the "baby boomers" die off, there will suddenly be a glut of spare housing. Not sure how the maths work on that one. The "baby boomer" generation, is classed as those born between 1946 and 1964. Well my parents were born a few years before that, and I was born in 1965.

My parents have two children, 5 grandchildren and two great grandchildren. Not sure how the current 5 family groups that have sprung up are supposed to divide a single house to live in. One house back on the market when my parents die, will not be enough to cover the five households these offspring currently live in.   

Currently there are 26 million homes in the UK, with an average of 2.4 people per household, (which is actually the same number per household as the rest of Europe.) The UK population will increase by about 7 million over the next decade, (even more if we stay in the EU, and the rest of eastern europe decants to the home counties), divide that by 2.4 and you can see we'll need more than 3 million more homes built over the next decade. Simple maths that a few rich people dying won't mean diddly squat. On these figures alone, we have to build 300,000 houses a year, and we are building half that number currently, and every year we don't build enough houses the worse it will get.    

[KDave]

I am just pointing out that demographics supports more potential downside for property, that is unless immigration can save it, but even that has a limit one way or another. Even with unlimited immigration increasing demand for housing, we still need increasing wages, the continuation of cheap credit, continued support of the government via help to buy, foreign speculative money and all the rest to maintain today's price levels, let alone see the kind of gains we have witnessed in the last 20 years. 

Rents can only rise by the amount people are able to pay, again there is a limit on that. It is not driven by demand alone. At the moment rent is also supported by housing benefit, but that can quickly change as George Osborne has shown with his recent tax changes concerning buy to let. 

[JB3]

20 hours ago, HighlandTiger said:

My parents have two children, 5 grandchildren and two great grandchildren. Not sure how the current 5 family groups that have sprung up are supposed to divide a single house to live in. One house back on the market when my parents die, will not be enough to cover the five households these offspring currently live in.   

Currently there are 26 million homes in the UK, with an average of 2.4 people per household, (which is actually the same number per household as the rest of Europe.) The UK population will increase by about 7 million over the next decade, (even more if we stay in the EU, and the rest of eastern europe decants to the home counties), divide that by 2.4 and you can see we'll need more than 3 million more homes built over the next decade. Simple maths that a few rich people dying won't mean diddly squat.

 

A glut of housing doesn't arise because the sell-off at the top exceeds the whole of the population below it - in your family example, the children (you and your siblings) and grandchildren probably already have houses. The glut arises if the sell-off at the top exceeds the number of people buying at the bottom. The people in the middle don't matter really, unless they are under-housed. I don't know what those relative numbers are but, for example, it's certainly possible that a baby-boomer sell-off will provide your required 3 million houses over the next 10 years from that source alone.

 

Any extras built will compound the 'problem' (some won't see falling house prices as a problem).

 

The prices are set at the margins, not the middle.

[Pipers]

The price is set at the margin well it is in a free market!!!  In Japan they were selling 100 year mortgages and everyone thought they were a good idea (this is renting from the bank in Essence's) until it went t-ts up and Japan have not recovered.  I read somewhere that lots of UK mortgages are interest only and either tracker or stocks, bonds etc plus some still have endowment all of these will have to be rolled over.  Then the private rental market is not as secure as the government has you believe, the BBC does a good job with its daytime programmes selling to the boomers then c5 does evenings with how to get rid of bad non paying tenants (2+2 anyone) 

In reality if the government reduces benefits for landlords/tenents (housing benefit for workers)then landlords won'get paid, the courts will be blocked for years and there will not be enough bailiffs! Rents will come down house prices will come down!  This would have a knock on effect onto the rest of the housing market.  

We are already seeing sold signs up and down like a yoyo not because the sale went through but because the first time buyer at the start of the chain couldn't get credit anymore. 

I watched location the other night, the prices for rubbish with those 2 salespersons kirsty and Phil pumpers of the housing market, remember it is in their interest that the housing market goes higher and is seen as a good investment! 

I'm just waiting for the next big housing give away! That's it that's what they can call it I'll ring Tory HQ right away.  We could have TV game show where contestants have to demonstrate how hard they work (watch the voice all you to do to be successful is work hard I kid you not they say it every week) have never claimed benefits not even working benefits, do not have more than 2 children and can fail an intelligence test as  the government don't want them to ask any questions.  The final round is for the viewers and this could be the itv's ninja course. The prize is 40% deposit on a starter house!!!! 

 

Oh and by the way I was talking to someone the other day who said his neighbour had won the lottery not the big jackpot but a substantial amount. I asked that's alright for them him and his wife. well it would of been but by the time hes paid the mortgage down it's all gone,  so he now owns his house then I replied, he said no he still owes quit a bit and he is 50 next year!  This is

 

[Oldun]

What is interesting to note that Japan has a declining population and a load of houses in the countryside sitting empty. However, in the cities where most of the population lives (80% of Japan lives on 20% of the land......), house prices are pretty much unchanged and the japanese still have vast amounts of savings, let alone the companies and what they are sitting on. There is a motion proposed to raise the inheritance tax threshhold on inherited property to 30,000,000 yen from its current 10,000,000 yen as the younger generation can't shift the inheritances in the countryside because they can't afford the tax it would bring onto the transaction (plus the fact that the average age of a farmer is well over 60)....they are hoping to address this......and then there is The Olympics......and The World Cup Rugby back to back 2019 and 2020...bit long but well worth the listen while doing the dinner or some such thing....

 

 

 

 

 

[LongJohnSilver]

Real estate bulls talk exactly that. You can win or lose on any investment if you select time lines to suit. Neither gold nor property can outperform inflation over the long run. They inevitably feed back into it. 

Anyone who thinks the next generation of voters who arent sitting on vast real estate gains will elect politicians who will recall those gains back into the general pot hasnt studied history.  We are entering the fourth generation of 'property' obsessed investors who have inevitably voted in property friendly policies starting with relaxed lending controls, planning restrictions and green belts,  tax breaks for prooerty ownership, tax breaks for leveraged ownership, housing benefit ( a tax subsidy for landlords), smi, zero interest rates, bank bailouts, removal of partnership status and thus unlimited liability for many financing house, help to buy, restriction on building social housing, and immigration.

 

all of these policies have turbo charged one asset class but the end result is that millions can no longer join the ponzi scheme so it will inevitably implode. It will mean revert to other asset classes because maths says so. 

The easiest way for the un-endowed is by tax and legislation. Increasingly people will vote for removal of tax breaks, relaxed planning, land taxes and if you think our kids generation will be happy to provide free arse wiping for us when we are older and need long term care whilst sitting on hundreds of thousands of pounds of unearned gains via property then we will get a pretty rude awakening. 

We are coise to the tipping point for property and the recent anti -btl legislation is the start.  I own a house but its to live in nothing else. 

 

 

 

[JB3]

Exactly. I acknowledge that my house (of which I only currently own a small part) has some value, but I've bought it to live in, not as an investment.

 

Any gain in value is a nice incidental benefit, not the purpose of the purchase.

 

I agree that land is a finite asset class and so, in theory, should protect against inflation. Moreover, unlike gold, it can be productive. However, also unlike gold, you can't hide land and so it can be confiscated quite easily. Even that armed militia in Oregon isn't going to be able to keep that land against a determined government that manages to garner public support.