The Myths of Property

[Marc]

Hi all,

Extract from The Economist

Myth: House prices must continue to rise in areas with limited land.

Reality: Land scarcity is bound to raise property prices, but there's no guarantee they will keep rising - "just look at Tokyo's huge price-drops since 1990."

* * *

Myth: Low interest rates make buying a home cheaper.

Reality: Borrowers who believe this "are suffering from money illusion." They may seem low in relation to income but, with inflation also low, the burden of debt is not lessened.

* * *

Myth: Price bubbles are less likely in housing than the stock market because higher transaction costs discourage speculation.

Reality: Investing in property is not safer that buying shares, especially when your tenant can unexpectedly move out.

* * *

Myth: It's always better to buy a house, because "paying rent is money down the drain."

Reality: The growing glut of rental properties means renting is currently cheaper than the cost of a mortgage.

* * *

Myth: House prices are unlikely to fall because interest rates will not be raised enought to burst the housing bubble.

Reality: Prices fall with merely "a change in sentiment."

[Marcus]

Marc you stirer,

You get the wooden spoon for the week mate!
Who was the author? Mary Holm??

Was this article sitting in with the imported cheeses under the "Swiss" label?

Regards,
Marcus.

[Marc]

Hello!

I got this from someone who got it from The Economist

Its always interesting to see what people or the media view property investment. What do you think about the statements? Any truth in the statements?

Best Regards

Marc

[Marcus]

Hi Marc,

I left this a while as I thought someone else might like to find their way through the holes in this story. But it seems that there are no takers so I guess I will have to take a second bite at the bait and start the ball rolling.

Myth: House prices must continue to rise in areas with limited land.

This is a generalised statement to which I guess I am guilty of having made similar statements in the past so I guess I'll have to defend it.

Reality: Land scarcity is bound to raise property prices, but there's no guarantee they will keep rising - "just look at Tokyo's huge price-drops since 1990."

A good example of how different markets can change. However, who is to say what the prices will be like in 20yrs time from now. Also if we were to go back 50yrs were the prices in fact higher than now? .... I doubt it.
For now in this particular "snapshot" in time, it may present itself as a good example as one of a hand full of exeptions to the rule, but only time will tell how things will evolve.

OK whos next?

Regards,
Marcus.

[Jeffa]

Hi all,

Extract from The Economist

Myth: House prices must continue to rise in areas with limited land.

Reality: Land scarcity is bound to raise property prices, but there's no guarantee they will keep rising - "just look at Tokyo's huge price-drops since 1990."

* * *

Myth: Low interest rates make buying a home cheaper.

Reality: Borrowers who believe this "are suffering from money illusion." They may seem low in relation to income but, with inflation also low, the burden of debt is not lessened.

* * *

Myth: Price bubbles are less likely in housing than the stock market because higher transaction costs discourage speculation.

Reality: Investing in property is not safer that buying shares, especially when your tenant can unexpectedly move out.

* * *

Myth: It's always better to buy a house, because "paying rent is money down the drain."

Reality: The growing glut of rental properties means renting is currently cheaper than the cost of a mortgage.

* * *

Myth: House prices are unlikely to fall because interest rates will not be raised enought to burst the housing bubble.

Reality: Prices fall with merely "a change in sentiment."

There always seems to be a virtue preaching economist in every media outlet demanding an extra tax on somebody or something.

Now I know why, I made more than them as middle mangement.. even more in retirement.

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