NoRegretsCoyote
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Mortgage interest is included in the CPI. From the CSO:
For elaborate reasons mortgage interest is not included in the HICP, the EU measure.
Mortgage interest is included in the CPI. From the CSO:Trying to work this out in my head. Inflation is based on the CPI that includes mostly the costs of goods and services, and not debt.
House purchases could represent the acquisition of a major capital asset (investment) rather than consumption, so purchase without a mortgage and capital repayments of a mortgage are excluded. Mortgage interest payments are included, since for most homeowners they are the best measure of the shelter cost of utilising their dwelling. Major home improvements, such as building an extension, are capital investments and so are excluded but re-decoration and maintenance are included.
Mainly because of tax.
Say you are 45 and have surplus cash and you want to boost retirement income. You would be crazy to put it into property given that the income to buy the property has been taxed, capital gains if it appreciates in value will be taxed, and rental income would be taxed. Compare that to pension contributions where you get tax relief on the way in, capital gains are untaxed, and only pay tax on drawdown (and can take out 25% tax free).
Interest rates reduce the demand for all assets , that's the reason why stock markets and especially bonds fall when interest rates are rising.
Property is slightly insulated from this due to the lag effect but eventually interest rates reduce the price of property as well, remember the 1980s after the massive interest rate rises during the 70s.
I know you are making the same point jpd
Another factor missed is that we have already had extraordinary property price increases in the western world over the last 2 decades even when we had little inflation in other things. Now the price of energy and food and other basics are experiencing very high inflation. Therefore inflation has now to play catch up in all the areas that had very low inflation for years. Property does not fall into that category. If people are paying much higher prices for fuel and food and paying higher interest rates on debt they are not going to have any ammunition to throw at a property bubble.
Can you explain that please?So i dont see property prices not inflation - its how our flawed monetary system actually works.
Well we've had an awful lot of money printing since 2008. Money are claims on resources. These claims are increasing exponentially, but the resources are not - as we can see with the energy crisis. Those close to the source of the printing - governments and large corporations - benefit since they can borrow this printed money and buy assets, usually property. By the time it reaches us, its inflation - everything costing more. Hence you have Blackrock as the United States' biggest landlord and Blackstone as Spain's biggest landlord. The companies are obviously rushing in here over the last few years. They are buying these assets because property is scarce, inflation is high and cant be otherwise due to increase in M2, and so a property is a good hedge. Leo Varadkher's comment in 2021 is one of the few times Ive seen this acknowledged, but there are more politicians in the US who speak about this. So property prices are unlikely to come down without some sort of fundamental system change or failure. All of our policies targeting "greedy" landlords over the past few years are a crude attempt to fight the above phenomenon. So in general, I think buying property is still the best investment as the phenomenon above is so strong.Can you explain that please?
Are all the landlords leaving.Just came across this thread - I have a similar one. I broadly agree that property is the best and safest hedge against inflation. So then, why are all the landlords leaving? Genuine question. 2 possibilities: 1/ they dont understand the thesis the OP outlines above, or 2/ the thesis outlined above applies elsewhere, but not here, where landlord properties rights have been eroded by every political party for years, and will be further eroded soon when SF are elected.
Apologies Brendan for not replying, I didn't see your post.
The problem was excessive leverage, not leverage itself.
Take a landlord who bought an apartment in 2007 for €400k at a 50% LTV on a tracker for 30 years. Their mortgage started around €1100 and fell to about €600 by 2009.
Rent probably started at €1400, declined to €1,000 in 2012 or so, and is maybe €1,700 again now.
Negative equity was very small and very brief, and property was always at least breakeven on a cashflow basis after tax. For the last half a decade generating a comfortable cash surplus. By now with an LTV of 30-ish %.
This landlord has made more with 50% leverage than with 0%, while of course 100% would have ruined them. There is a happy medium.
Mortgage interest is included in the CPI. From the CSO:
For elaborate reasons mortgage interest is not included in the HICP, the EU measure.
From a CSO perspective is it not self defeating to include mortgage interest?
In 2022 so far my income has risen but my mortgage costs have stayed the same leaving me (partially) better off. I don't expect this situation to persist however!How should I think about this in practice? Inflation is dynamic whilst interest rates are sticky (fixed term).
If a person had purchased in 2008 at lets say 300k they have seen their property drop through the floor and are just about back on level terms today , while the next few years will be good in terms of inflating that 300k price again from an internal market due to shortage of supply we must appreciate that the global out look as per the IMF is "Gloomy and more uncertain " so the premise of 165% increase is very optimistic .I think you are conflating different issues.
A property bought today for €100k will be worth €265k in 20 years if property prices rise by 5% a year.
You could have inflation of 100% over a particular period with a fall in property prices over the same period.
You could borrow €100k today and find that interest rates take off and exceed inflation. Interest rates for investment properties are about 4.5% at the moment. That is a lot. They could well rise higher.
Rents will probably exceed interest rates.
Property is like the stock market where timing is everything. To go back to the original post where the time frame was 30 years. Which 30 years out of the past 50 years was the best time to buy property in? Sell in? Or rent in? The current exodus of landlords is perhaps generational? There was once a time when property was considered a good buy for pension purposes. This coincides with the current generation who are + or - 5 years to retiring.If a person had purchased in 2008 at lets say 300k they have seen their property drop through the floor and are just about back on level terms today , while the next few years will be good in terms of inflating that 300k price again from an internal market due to shortage of supply we must appreciate that the global out look as per the IMF is "Gloomy and more uncertain " so the premise of 165% increase is very optimistic .
You or others can live in a house, but not in a share...Property is like the stock market where timing is everything.
My mistake. I thought the post referred to BTL and investment properties. Therefore I consider my analogy to be valid.You or others can live in a house, but not in a share...