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  #41  
Old 11.01.2019, 05:54
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Re: Low Low interest rates -housing bubble? - inevitable price correction?

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I had no downpayment,
You will if you ever buy here. It was well possible in NL to get a 100% mortgage, not here.

But I agree with your reasoning, bought for similar reasons.
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  #42  
Old 11.01.2019, 09:15
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Re: Low Low interest rates -housing bubble? - inevitable price correction?

Over the last couple of years I have seen property prices (I am in Zurich) flatten or lower than the previous years so I can't see a major correction (which assumes prices are not correct) happening here. The crazy premiums paid for prime locations are not happening as they were in the past and the "get in the market at any cost it's going up" (bitcoin anyone?) has also passed IMHO. As expressed to me by a Mortgage broker, as long as you are paying your mortgage on time banks don't do any real reviews on affordability once you have a mortgage so chance of a margin call are slim to none on property.


Owning rather than renting will always be an attractive option, it is in our DNA, we need secure shelter so there will always be a more emotional element to this market than others adding a premium to prices and lowering your return. There is always a debate here about superior returns from other investments, which is possible and true at times but unless you have a pretty damn good understanding of whatever you are investing in then it is best not to do it. Property for most people is more understandable so therefore maybe a wiser but lower paying investment, especially as some of the return is not financial.


To grow wealth you need leveraging in whatever you are investing in but as stated earlier it has the least margin calls of any leveraged investment. You also have greater control over the value of property than any other investment through renovation* if done correctly but this is very dependant on location, condition of the property and price at purchase.

You need a minimum of 20% of the property value (not price) to get a loan but generally this should be stated as 35% realistically as you will need to get to this level asap to keep the bank happy. Repaying this 15% in a reasonable time while maintaining a depreciating asset is what gets people into trouble when they assess affordability.

*Disclaimer, my business is renovations so I have a vested interest in promoting them.
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  #43  
Old 11.01.2019, 09:41
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Re: Low Low interest rates -housing bubble? - inevitable price correction?

For me it is a question of are you doing it as an investment. Or are you doing it for somewhere to live, somewhere you can have another colour on the walls rather than white, and has been mentioned able to flush the loo after 10pm.


For an Investment, I dont see a very valid case for buying in Switzerland. When you are talking of putting down 200k+ CHF as a deposite then being in debt even with near zero interest rates of 800k, and you ultimately never pay off that loan, I cant see the business case. 200k CHF is a deposite for 2 places in most EU countries or an outright purchase of one.


100k depo on 2 places and a 100k mortgage x2, you'll repay perhaps 600 on each per month and generate 200-400 additionally, after the mortgage has been paid, on each property (rough numbers in any currency)


In some of the above examples people are talking of saving 1k per month by buying, ok thats very good, but in this rough example you have 400-800 in left over rent money after bills paid, that you can off set against the rent on the place you live in here, 2 properties where your risk is spread, and in 20 years full ownership and income without the mortgage deductions.


In Switzerland you either have 35% paid off at 65 years of age and an on going mortgage, or it all paid off and subject to tax. In one property so the risk isnt spread.


...But of course you can have blue walls!
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  #44  
Old 11.01.2019, 09:44
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Re: Low Low interest rates -housing bubble? - inevitable price correction?

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At least there will be no doubt that who bought 25 yrs ago now will have a property which is at this moment very likely of much higher value.
Since you keep repeating this overly simplicistic assumption:

Wüst&Partner (wuestpartner.com) are the goto source for long-term price info on real estate in CH, AFAIK they're the only ones providing actual market data going back many decennials. Their national index increased 19 points, or some 5%, from 1993 till 2017 (412 to 431 index points, the most recent 25 year timespan for which they provide data). Cumulative inflation amounts for about 15%, meaning the purchase power of the house price actually dropped by about 10%.

And that came with a huge amount of pain, by 2000 when it hit its low of 288 points the index lost some 30%, wiping out all the equity you'd be required to put up today (and, presumably, in the '90ies).

Your bank would have required additional funds long before that. They don't care if you think "I didn't sell therefor it's only book loss" with the implication that the loss can be safely ignored. In a scenario as the above they will see you pay and increase your equity, or force you to sell.
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  #45  
Old 11.01.2019, 09:44
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Re: Low Low interest rates -housing bubble? - inevitable price correction?

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That must be a big shit then
I never said I did
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  #46  
Old 11.01.2019, 09:53
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Re: Low Low interest rates -housing bubble? - inevitable price correction?

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What would be interesting is that if there was website or a software that compares the actual cost of owning against renting with all the variables I.e like the tax you’d pay for owning the property, maintenance costs, buying costs, selling costs, legal fees, registration fees and the all important interest rate averaged for 25 years against what one would save in rental payments.

Furthermore, it would also be interesting to compare BTL investments against the stock market (let’s use FTSE Allshare as Benchmark) with a 25 year horizon embedded with dynamic time shifting for past actual performance and future predicted performance.

I don’t even think Quant could make that sort of detailed assessment.
Look at 'property' funds in mutual & pension funds, they perform very badly v the stock market. Most of the Swiss rental property is owned by Swiss pension funds, imagine what would happen if they started to sell off their portfolios.

Home owners always 'forget' their expenses, BTL investors never cost in their time or deduct their salary theoretical when it's a full time business every time they boas their 'yield'. We stayed with a friend who manages his own student property, he received calls 7 days a week, problems from internet connections, toilet won't flush, fuses blown, cooker not working all non stop.
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  #47  
Old 11.01.2019, 10:04
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Re: Low Low interest rates -housing bubble? - inevitable price correction?

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To grow wealth you need leveraging in whatever you are investing in .
I don't believe thats true, leverage is why most people go bankrupt. I don't use leverage in any way as I have too much to lose.
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  #48  
Old 11.01.2019, 10:17
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Re: Low Low interest rates -housing bubble? - inevitable price correction?

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The rates available are nothing to do with Banks opinion on future house values, just what the wholesale market wants for 20 years v negative rates on offer for short term.

Allowing B permit owners allowed people just off the 'boat' to buy property, this was a huge no of new buyers, if those buyers became sellers then 50% off would come rather quickly.
Very true. That catapulted the market upwards.

A marker for real estate value is the influx /outflux of foreigners. i hear currently that prices for apartments in Lausanne are coming under pressure as a result of lower no of foreigners coming in.

Apartments in Sion can be had with the first 6 months for free.
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Old 11.01.2019, 10:18
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Re: Low Low interest rates -housing bubble? - inevitable price correction?

First thing to consider is that banks already use 5% interest as a base for affordability calculation. This makes it far less likely that people will suddenly be unable to pay back their mortgages.

Another thing is, only the wealthy were ever able to afford property at inflated prices and paid above what a conservative bank estimated as fair value. Even if there are some margin calls, I see them unlikely to cause an avalanche and a housing market crash.

Last but not least, LIBOR is planned to be phased out by 2021. The SONOR will be used for mortgage rate calculations instead.

Average rate, as I was able to check, was 0.48% over the last 20 years.

https://m.ubs.com/ch/en/mortgages/li...blosung-en.pdf

These rates peaked (reached 2-3%) for 2-years around the dotcom bubble and for another 2 years during the financial crisis in 2007-2008.

It's very likely that they will once again peak in the future, but this is hugely irrelevant. If you want to look at housing affordability over a 25 year period, you should also use 25 year average for the interest rate, not spot-price-doomsday-scenario.
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Old 11.01.2019, 10:19
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Re: Low Low interest rates -housing bubble? - inevitable price correction?

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I don't believe thats true, leverage is why most people go bankrupt. I don't use leverage in any way as I have too much to lose.

I agree with the leverage/bankrupt comment. Are you saying you have never in your life used leverage to grow your wealth? Or as for most people this is dependant on individual circumstances at the time and ability to cover that leverage which is the problem but now your circumstances have changed?
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  #51  
Old 11.01.2019, 10:20
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Re: Low Low interest rates -housing bubble? - inevitable price correction?

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Look at 'property' funds in mutual & pension funds, they perform very badly v the stock market. Most of the Swiss rental property is owned by Swiss pension funds, imagine what would happen if they started to sell off their portfolios.
Some pension funds have started selling off portfolios. There is still a lot of cash coming in at these funds that need to be invested.
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  #52  
Old 11.01.2019, 10:21
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Re: Low Low interest rates -housing bubble? - inevitable price correction?

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First thing to consider is that banks already use 5% interest as a base for affordability calculation. This makes it far less likely that people will suddenly be unable to pay back their mortgages.

Another thing is, only the wealthy were ever able to afford property at inflated prices and paid above what a conservative bank estimated as fair value. Even if there are some margin calls, I see them unlikely to cause an avalanche and a housing market crash.

Last but not least, LIBOR is planned to be phased out by 2021. The SONOR will be used for mortgage rate calculations instead.

Average rate, as I was able to check, was 0.48% over the last 20 years.

https://m.ubs.com/ch/en/mortgages/li...blosung-en.pdf

These rates peaked (reached 2-3%) for 2-years around the dotcom bubble and for another 2 years during the financial crisis in 2007-2008.

It's very likely that they will once again peak in the future, but this is hugely irrelevant. If you want to look at housing affordability over a 25 year period, you should also use 25 year average for the interest rate, not spot-price-doomsday-scenario.
I think you should ignore interest rates for the last 11 years in any calculations as they were lower than in the previous 350 years.
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Old 11.01.2019, 10:23
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Re: Low Low interest rates -housing bubble? - inevitable price correction?

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I think you should ignore interest rates for the last 11 years in any calculations as they were lower than in the previous 350 years.
Since LIBOR will no longer be used, you could probably ignore it alltogether.
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Old 11.01.2019, 10:26
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Re: Low Low interest rates -housing bubble? - inevitable price correction?

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I agree with the leverage/bankrupt comment. Are you saying you have never in your life used leverage to grow your wealth? Or as for most people this is dependant on individual circumstances at the time and ability to cover that leverage which is the problem but now your circumstances have changed?
I did aged 21 & 24 & sold the second property aged 32. Never used leverage since & won't as too many people I know lost their property during that period. I guess I am too risk adverse.
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Old 11.01.2019, 10:27
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Re: Low Low interest rates -housing bubble? - inevitable price correction?

OP, to have peace of mind you can look at it from a different angle. Buying home for own use is not an investment. It is consumption. Investments in property is totally different thing and the chances that the property you would like to invest in will be same you would like to live in, are negligible. That is why buying a home should be treated the same way like buying a car, a watch or a caviar. One simply should be able to afford it. Obviously, putting your last money in the mortgage is equally stupid as buying caviar without having money for bread.
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Old 11.01.2019, 10:27
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Re: Low Low interest rates -housing bubble? - inevitable price correction?

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First thing to consider is that banks already use 5% interest as a base for affordability calculation. This makes it far less likely that people will suddenly be unable to pay back their mortgages.
You're mixing things. Most debtors don't pay back, they merely pay maintenance cost, to use that term. While a homeowner is supposed to pay back the 2nd morgage, typically 15%, in practice the bank is all too happy to re-raise it and most owners will gladly use that option.

The problem from a debtor's POV is the absence of inflation. With mild inflation (2-3%, say) the debt that is nominally unchanged automatically loses value accordingly. Absent inflation you have to reduce the debt's nominal value to actually reduce it, something that's much less often done.
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Old 11.01.2019, 10:30
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Re: Low Low interest rates -housing bubble? - inevitable price correction?

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I agree with the leverage/bankrupt comment. Are you saying you have never in your life used leverage to grow your wealth? Or as for most people this is dependant on individual circumstances at the time and ability to cover that leverage which is the problem but now your circumstances have changed?
I can say I never used leverage to grow wealth. I did take out a mortgage when buying the first house and payed it off in 5 years. Wealth comes with investing surplus cash and compounding (ask Buffett, ask Fundsmith).

Leverage (credit) caused the 2008 crisis and following recession. This versus the Tulp Mania crisis in 1637 where the crash was not followed by a recession as investors didn't use credit to buy the tulips.
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Old 11.01.2019, 10:31
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Re: Low Low interest rates -housing bubble? - inevitable price correction?

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Since LIBOR will no longer be used, you could probably ignore it alltogether.
That would be very foolish, I don't think Banks will be taking your advise.
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Old 11.01.2019, 11:19
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Re: Low Low interest rates -housing bubble? - inevitable price correction?

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I can say I never used leverage to grow wealth. I did take out a mortgage when buying the first house and payed it off in 5 years. Wealth comes with investing surplus cash and compounding (ask Buffett, ask Fundsmith).
I have actually invested with borrowed money. I did it because

1) I was convinced the investment would provide a return of many times the interest I was paying, which it did.

2) I was convinced the residual risk was manageable.

3) The overall amount was an amount I could still have afforded to lose, and if push came to shove I could have sold off other stuff to repay the debt, even assuming very negative market developments..

4) it was for a limited period of time, so no open end risk.

Playing with borrowed money becomes dangerous when you borrow more than your safety allows.
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Old 11.01.2019, 12:03
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Re: Low Low interest rates -housing bubble? - inevitable price correction?

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You will if you ever buy here. It was well possible in NL to get a 100% mortgage, not here.

But I agree with your reasoning, bought for similar reasons.
I know, 20% here (of which 10% must be "cash")

I even could get way above 100%, and legally allowed was 125% Good thing they brought that down, but just last yr it became 100% Plenty off Dutch who had problems with the overrated mortgage values when the prices dropped.
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