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  #101  
Old 05.12.2011, 14:20
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Re: Housing bubble about to explode in the Arc Lemanique

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the problem you have now gva is that if

a) your right , you will be losing your job and house prices will crash and bad for everyone
b) your wrong, house prices continue to go up or stay the same and you will have to pay higher rent etc

so lose/lose situation? whats your plan?
I prefer to wait say 1yr to see where the market (and economy, and my job) is. Like lots of people around me... even in the worst case, if prices go up by say 5% (which nobody seems to believe anylonger!), it's a lower risk than lo(o)sing 75% of your capital.

Last edited by gva; 05.12.2011 at 14:23. Reason: typo
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  #102  
Old 05.12.2011, 14:30
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Re: Housing bubble about to explode in the Arc Lemanique

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He' not betting on anything. He just feels that his job is not safe anylonger, and there is no "work from home" solution for an unemployed banker.
Actually it's one of the easiest jobs to do for yourself from home, anyone can trade on their own account.

Last edited by Longbyt; 05.12.2011 at 15:01. Reason: quote
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  #103  
Old 05.12.2011, 14:49
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Re: Housing bubble about to explode in the Arc Lemanique

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I prefer to wait say 1yr to see where the market (and economy, and my job) is. Like lots of people around me... even in the worst case, if prices go up by say 5% (which nobody seems to believe anylonger!), it's a lower risk than lo(o)sing 75% of your capital.
well, nobody really knows what will happen with prices. however, your downside is limited to the value of the property (and it will probably not fall to zero value) and the upside is theoretically unlimited.

if i get the time, i will write about my buying experience as it will probably be a guide as to what exactly not to do when buying a house...
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  #104  
Old 05.12.2011, 15:00
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Re: Housing bubble about to explode in the Arc Lemanique

If you can work a good percentage from home- then it really makes sense to move away from more expensive areas - and get much more for your money if you want a house that is a great 'home' - travel into the office a couple of times a week.

Mind you I know quite a few people around here who commute daily to Neuchatel and Bern- as they want space for children and pets/horses, sports facilities on the door step, nature - shopping in France, small good schools for kids, etc. For a fraction of the cost.

Last edited by Odile; 05.12.2011 at 15:19.
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  #105  
Old 05.12.2011, 15:08
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Re: Housing bubble about to explode in the Arc Lemanique

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well, nobody really knows what will happen with prices. however, your downside is limited to the value of the property (and it will probably not fall to zero value) and the upside is theoretically unlimited.
Unfortunately you share the ownership of the house with your bank via a loan (typically 20%/80%), and your bank won't lose any money with you... if prices go down more than 20%, you're not only losing all your investment but also getting into debts with your bank.
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  #106  
Old 05.12.2011, 15:28
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Re: Housing bubble about to explode in the Arc Lemanique

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well, nobody really knows what will happen with prices. however, your downside is limited to the value of the property (and it will probably not fall to zero value) and the upside is theoretically unlimited.

if i get the time, i will write about my buying experience as it will probably be a guide as to what exactly not to do when buying a house...
Property often falls to zero or has a negative value as the land is worth more on it's own. Some houses built in North London after 1970 have been replaced by much larger ones. I had 2 friends in Highgate London whose parents where archetects, both the houses they built to live in have been replaced in the last 5 years. One of which won design awards at the time.

It happens in CH as properties are depreciated at 1% a year, & land is valued both with & without the property, the house often has zero or less value.

The upside is based on how much banks will lend, as post people do not pay cash.
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  #107  
Old 05.12.2011, 15:29
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Re: Housing bubble about to explode in the Arc Lemanique

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Unfortunately you share the ownership of the house with your bank via a loan (typically 20%/80%), and your bank won't lose any money with you... if prices go down more than 20%, you're not only losing all your investment but also getting into debts with your bank.
this is why i say your downside is limited to the value of the property (20% deposit + 80% bank loan). in reality, i think once you bought it, the value is irrelevant (except in the case where the bank will make a margin call) - more important is the debt servicing which will depend on:

- interest rates (eliminate this risk by fixing)
- security of your income
- general employment and desirability of the property (in case you lose your job and need to rent it out)

rates are so low now, that you can easily fix a very low 10 year mortgage and then save up enough of a cash buffer to be able to save a year of mortgage payments.

combined with RAV safety net and the option of renting out the property, i would say the risk of not being able to meet the monthly payments is quite small and can be mitigated.
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  #108  
Old 05.12.2011, 15:30
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Re: Housing bubble about to explode in the Arc Lemanique

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What makes you think a 30% fall is all that could happen, markets always overshoot fair value in both directions ,60% is quite possible which has happened in some US Cities & Ireland
60% fall. Possible but not likely. We chose to buy in an area which we think will be sheltered from this sort of thing due to location and amenities. We chose carefully.

If ours drops by 60% then others will drop much, much more.

And even so, we still need somewhere to live so apart from finding the money to pay the bank the short-fall on the mortgage, we`ll just sit tight.
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  #109  
Old 05.12.2011, 15:34
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Re: Housing bubble about to explode in the Arc Lemanique

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combined with RAV safety net and the option of renting out the property, i would say the risk of not being able to meet the monthly payments is quite small and can be mitigated.
Depending of you residents permit & if you used any pension funds to buy the property that may or may not be an option.
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  #110  
Old 05.12.2011, 15:35
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Re: Housing bubble about to explode in the Arc Lemanique

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Property often falls to zero or has a negative value as the land is worth more on it's own. Some houses built in North London after 1970 have been replaced by much larger ones. I had 2 friends in Highgate London whose parents where archetects, both the houses they built to live in have been replaced in the last 5 years. One of which won design awards at the time.

It happens in CH as properties are depreciated at 1% a year, & land is valued both with & without the property, the house often has zero or less value.

The upside is based on how much banks will lend, as post people do not pay cash.
i think you might be confused by the terminology i use. when i say property, i mean the land in combination with the improvements/buildings on that land.

with this in mind, you seem to agree that the land+improvements is unlikely to be worth zero. in theory this could happen (e.g. nuclear contamination) but i would expect the government would provide some compensation in such extreme cases.
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  #111  
Old 05.12.2011, 15:39
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I am really NO expert and don't know that area very well - as usual the nearer to a commutable station the more expensive. I'd say about 750.000 but if a bit further away you can still get great houses for around 500.
Assuming a 750k case around Yverdon/Vallee de Joux, did these properties see in recent couple of years percent-wise similar preise increase as the Geneve/Lausanne area? Was it around 580-600k mark in the 2000s?
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  #112  
Old 05.12.2011, 15:41
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Re: Housing bubble about to explode in the Arc Lemanique

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60% fall. Possible but not likely. We chose to buy in an area which we think will be sheltered from this sort of thing due to location and amenities. We chose carefully.

If ours drops by 60% then others will drop much, much more.

And even so, we still need somewhere to live so apart from finding the money to pay the bank the short-fall on the mortgage, we`ll just sit tight.
if you need somewhere to live, then the value of the property will also be underpinned by the value of the rent that it obviates. as a rough model, assuming that you would pay 1600pcm and have a 3% mortgage (cost of capital), the value calculated as a perpetuity would be:

1.6*12/0.03 = 640k

of course, you need to factor in also eigenmietwert and mortgage interest deductions.
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  #113  
Old 05.12.2011, 15:47
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Re: Housing bubble about to explode in the Arc Lemanique

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Assuming a 750k case around Yverdon/Vallee de Joux, did these properties see in recent couple of years percent-wise similar preise increase as the Geneve/Lausanne area? Was it around 580-600k mark in the 2000s?
No, prices haven't really begun to rise in those areas much- I am only assuming (possibly totally wrongly, as said I am NO expert) that as the housing market near Geneva/Lausanne is getting so tight and prices rising - price rises will eventually transfer to other areas which are easily commutable. Also because many large businesses are moving further away from the Riviera due to cost, land and housing shortages and changes in business tax (as in Neuchatel area + the rise of the quality watch industry).
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  #114  
Old 05.12.2011, 15:48
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Re: Housing bubble about to explode in the Arc Lemanique

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if you need somewhere to live, then the value of the property will also be under-pinned by the value of the rent that it obviates. as a rough model, assuming that you would pay 1600pcm and have a 3% mortgage (cost of capital), the value calculated as a perpetuity would be:

1.6*12/0.03 = 640k

of course, you need to factor in also eigenmietwert and mortgage interest deductions.
Well over the last 25 years interest rates for home ownership have been a great deal higher than 3%. FWIW you cant get a perpetual 3% interest rate, repairs & depreciation will exceed 1% which gives a valuation below 480k using your model. with interest rates of 5% + 1% deprecuiation 320k
The Swiss like new windows every 20 years as well!
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  #115  
Old 05.12.2011, 16:30
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Re: Housing bubble about to explode in the Arc Lemanique

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Well over the last 25 years interest rates for home ownership have been a great deal higher than 3%. FWIW you cant get a perpetual 3% interest rate, repairs & depreciation will exceed 1% which gives a valuation below 480k using your model. with interest rates of 5% + 1% deprecuiation 320k
The Swiss like new windows every 20 years as well!
that's true. a 6% long term would be more conservative. however, if you can fix for 10 years, then you can take the 2.5% for the first 10 years and then discount the future ones

first 10 years @2.5% = 172k
perpetuity @6% = 320k
less first 10 years @6% = -150k

total discounted value = 342k

assuming the property costs around 700k, then your downside would then be around 50% by this rough model.

of course, rents also increase over time, so if you factor in rental increases, then the original estimate may not be so unrealistic.
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  #116  
Old 05.12.2011, 16:50
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Re: Housing bubble about to explode in the Arc Lemanique

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of course, rents also increase over time, so if you factor in rental increases, then the original estimate may not be so unrealistic.
I am still paying the same as in 1999, due to the fall in interest rates I could demand a rent reduction if I could be bothered.
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Old 05.12.2011, 17:34
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Re: Housing bubble about to explode in the Arc Lemanique

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I am still paying the same as in 1999, due to the fall in interest rates I could demand a rent reduction if I could be bothered.
but you just assumed earlier that rates were going to go to 6% - you can't have your cake and eat it!
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  #118  
Old 05.12.2011, 17:53
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Re: Housing bubble about to explode in the Arc Lemanique

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Lots of EF members have been in the region for a lot of time, bought several years ago when prices were reasonable, they have maybe rock solid jobs (and lots of time for postings on the EF) and are now looking down to undecided newcomers like cats from the heights of a secure roof. They already made up their gains.

For somebody like me, who was about to buy, I'm at the bottom of the pyramid

...

Pretty risky plan, but for the aforementioned cats on the roof it's a nice spectacle to watch (shuddering like in the movies) ..
This won't give you comfort but I am one of these cats on da roof... I was lucky enough to buy in 2001 when prices were still at the bottom.

This said, I would never ever buy anything in the current market environment.
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  #119  
Old 05.12.2011, 18:00
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Re: Housing bubble about to explode in the Arc Lemanique

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that's true. a 6% long term would be more conservative. however, if you can fix for 10 years, then you can take the 2.5% for the first 10 years and then discount the future ones

first 10 years @2.5% = 172k
perpetuity @6% = 320k
less first 10 years @6% = -150k

total discounted value = 342k

assuming the property costs around 700k, then your downside would then be around 50% by this rough model.

of course, rents also increase over time, so if you factor in rental increases, then the original estimate may not be so unrealistic.
So does this mean that this specific theoratical property you mention is 100% over valued compared to a similar asset with a comparable risk profile?

PS: from my observation on swiss property prices, they tend to be priced with a rate between 0.03 and 0.04 and highly unsustainable rents. For these properties to hold their current values, the interest rates need to stay low for a long time and the rents need to stay high. If this is the case and you are not worried about change, go ahead, go on a shopping spree, it's cyber monday after all ;-)
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  #120  
Old 05.12.2011, 19:35
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Re: Housing bubble about to explode in the Arc Lemanique

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PS: from my observation on swiss property prices, they tend to be priced with a rate between 0.03 and 0.04 and highly unsustainable rents. For these properties to hold their current values, the interest rates need to stay low for a long time and the rents need to stay high. If this is the case and you are not worried about change, go ahead, go on a shopping spree, it's cyber monday after all ;-)
it depends. it seems that properties in Munich have been around that level or lower for many years. not sure what the long run average is for switzerland, but personally, i wouldn't buy property with less than a 6% gross yield.

having said that, it's not really surprising that people are piling into real estate - your "risk-free" rate is now close to 0% (bank deposit) and it is really anything but risk-free.
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