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  #61  
Old 11.01.2019, 15:49
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Re: Low Low interest rates -housing bubble? - inevitable price correction?

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I had no downpayment, and given that I shortly after bought a new car I highly likely would just have bought a bigger car If I had extra money spare (raising my monthly expenses )

You can believe all you want, but including taxes, maintenance and whatever you can think of buying for those 9 yrs including the loss on selling was still cheaper than renting an equal object. I did my math afterwards with all costs known.
Ok, 0% downpayment and low interest rates is quite a rare combination and thumbs up for you taking advantage of that.

But with the 20% minimum down payment, the opportunity cost is quite high in CH. Also when calculating opportunity cost, a lot of people neglect the accumulation phase and only calculate from the time of purchase of the property. What I am saying is that, to accumulate the 20% down payment, most people save for 5-10 years while that money earns 0% interest.

For example: say you save for ten years for 20% of a 1Mil apartment. Since you intend to buy, you don't invest it as you will soon need the money. With a 7.8% historical S&P return, you already loose 50% of the down-payment as opportunity cost, by the time you buy your apartment. OR the other way around, you need to calculate with an opportunity cost of 30% even if your down payment is only 20%.

If you only need 5 years to save up the down payment, you still start with a 25% oppo. cost of the accumulation phase.

The reason I emphasise this is because I often hear it from people who invest in real estate: "rather than buy some fund every month, I better keep accumulating money and when I have enough I buy a cheap apartment to rent out every few (e.g. 5) years".
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  #62  
Old 11.01.2019, 16:05
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Re: Low Low interest rates -housing bubble? - inevitable price correction?

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For example: say you save for ten years for 20% of a 1Mil apartment. Since you intend to buy, you don't invest it as you will soon need the money. With a 7.8% historical S&P return, you already loose 50% of the down-payment as opportunity cost, by the time you buy your apartment. OR the other way around, you need to calculate with an opportunity cost of 30% even if your down payment is only 20%.

If you only need 5 years to save up the down payment, you still start with a 25% oppo. cost of the accumulation phase.

The reason I emphasise this is because I often hear it from people who invest in real estate: "rather than buy some fund every month, I better keep accumulating money and when I have enough I buy a cheap apartment to rent out every few (e.g. 5) years".
The same argument applies for people who try to time the market. I know several people who have admitted they have larger sums of money collecting dust on their bank accounts, just lying around unused so they can buy oodles of ultra cheap stocks when the next crash hits (October 2019 being the latest popular prediction).
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  #63  
Old 11.01.2019, 17:38
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Re: Low Low interest rates -housing bubble? - inevitable price correction?

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I think thats a foolish assumption, anyone who rented a house 25 years ago will be paying a similar rent to when they moved in, it probably did go up 10% but with interest rate falls the rent will have fallen since. Then salaries are not very different, in IT or Banking probably less.
That 25 year old property will need a significant refit soon.
Salaries are driving rents not IRs.

house prices are driven by IRs and also liquidity and relaxed loan availability.
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  #64  
Old 11.01.2019, 21:33
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Re: Low Low interest rates -housing bubble? - inevitable price correction?

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Salaries are driving rents not IRs.
I think FatMan is talking about the “Reference Interest Rate” that the Swiss rents are linked to. This has led to a lot of rents falling over the last few years (if you ask your landlord)
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  #65  
Old 11.01.2019, 23:59
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Re: Low Low interest rates -housing bubble? - inevitable price correction?

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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.
Very interesting observation.
I'm assuming that mortgage repayments and new rents (existing rents are regulated) are determined by salary levels in the long term. From salary levels and interest rates one can derive the corresponding long term house prices, or, except for recession or boom shocks the mortgage interest and capital repayments are commensurate to renting costs and salaries.
So yes, it looks very probable that in low inflation environment there might be nasty surprise that with a decreasing income at older age more mortgages might become unaffordable than it used to be.
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  #66  
Old 12.01.2019, 19:55
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Re: Low Low interest rates -housing bubble? - inevitable price correction?

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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.
Agree, there were several of our friends in the Netherlands around that time who had a higher mortgage than the actual value of the house. In a situation where house prices were in freefall. The banks never made a problem of that because they would be cutting their own hand. The houses were only sellable at very low prices (if at all) and these mortgages were still on the balance sheets of the banks that were being bailed out by the government.

I can imagine the same thing happening here if a big chunk of the market would go under water. I would not bet my house on it though..
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  #67  
Old 12.01.2019, 22:14
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Re: Low Low interest rates -housing bubble? - inevitable price correction?

We got 100% mortgage in UK in 73 - and when we bought our next house in 75, again. Our Endowment mortage went up to 19.5% - a year after we bought our 3rd house! Scary times. Some of my colleagues at that time got 110% mortgages, and found themselves in massive negative equity in the 80s

Fortunately, things righted themselves and we made a healthy profit from that fabulous family home.
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  #68  
Old 12.01.2019, 22:57
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Re: Low Low interest rates -housing bubble? - inevitable price correction?

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Agree, there were several of our friends in the Netherlands around that time who had a higher mortgage than the actual value of the house. In a situation where house prices were in freefall. The banks never made a problem of that because they would be cutting their own hand. The houses were only sellable at very low prices (if at all) and these mortgages were still on the balance sheets of the banks that were being bailed out by the government.

I can imagine the same thing happening here if a big chunk of the market would go under water. I would not bet my house on it though..
Yep, I've known people who wanted to move but simply could not since they could not refinance the loss, so they in fact were a prisoner of their own choices.

Buying a house of 250K with 106% mortgage, and when they wanted to sell the prices had dropped with 20%, meaning 65K to find somewhere before the bank would allow a sell. I've seen people driving 400km a day back and forth to work since they could simply not effort to move and could not find a job closer to home.

I since of day one put some aside every month to avoid such and when it came to selling was very happy I did, since how to refinance such when deciding to emigrate the country with no job here yet, simply impossible.

My biggest fear here when buying would be if after 10 yrs it would turn out the interest has tripled or even worse when negotiating the new mortgage.
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  #69  
Old 12.01.2019, 23:39
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Re: Low Low interest rates -housing bubble? - inevitable price correction?

Yep, friends divorced in very difficult circumstances (he realised he was gay and had always been- when their son ws 12 ...) and it was awful- they could not sell and could not afford to rent or buy a second property and had to live together in a small cottage mortgaged up to the hilt and more.

Last edited by Odile; 12.01.2019 at 23:56.
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Old 12.01.2019, 23:54
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Re: Low Low interest rates -housing bubble? - inevitable price correction?

OP "I find the current low IRs for 10y mortgages (1.5%) " you can find a lot better than 1.5%? Apologies if that was already posted but 4 pages are too much to read through!

Whether you wish to remortgage to a better deal or are looking for the best mortgage solution for a new home, you’ll find the product to fit your needs at comparis.ch.

10-year fixed-rate mortgages available from 1.02%
https://en.comparis.ch/hypotheken/default
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Old 13.01.2019, 17:05
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Re: Low Low interest rates -housing bubble? - inevitable price correction?

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We got 100% mortgage in UK in 73 - and when we bought our next house in 75, again. Our Endowment mortage went up to 19.5% - a year after we bought our 3rd house! Scary times. Some of my colleagues at that time got 110% mortgages, and found themselves in massive negative equity in the 80s

Fortunately, things righted themselves and we made a healthy profit from that fabulous family home.
I am really amazed that you got 100% mortgage in 1973 & 1975 before deregulation. Mortgages were severely rationed & normally you had to save with an institution for a few years before they would lend you any money.

It seems very odd that you would have not been expected to take any of the profit from your first property & reinvest it in the second, I can't believe that was possible in 1975.
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Old 13.01.2019, 18:08
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Re: Low Low interest rates -housing bubble? - inevitable price correction?

I am surprised by how surprised you are - I can only tell you how it was. When we moved to Staffs, we were supposed to have a hospital subsidised house- but they had double booked- so they advised us to buy our own- so glad we did or we would have been 3 years further down the chain. The 100% mortgages were perhaps limited to certain professions with good prospects. We didn't have a penny saved - for sure- and very few bits to put into said house - apart from second hand stuff given to us- bean bags I made, and a bed made with slats. Happy days- when baby came, we had everything begged or cheap second-hand- as the mortgage was crippling us.

Of course we reinvested the profits from first house into second- but we bught a larger house each time- therefore needing more mortgage- typical in the UK. Then again a few years later. That was our ideal house, and we improved it and extended it over the 33 years we lived there, without adding to mortgage- and it paid off nicely.
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