@wavemotion, if you bought an expensive property recently. can you help the community by sharing some info on your gross income, calculations that you consider before buying the property and motivation to buy vs rent?
that can be expensive to maintain. A brand new house “should” not have issues for many years.
I’m not sure if it’s a good idea
Hey, if you search in this thread you will see most of the numbers and the reasons.
I think there is a nice brainstorming (of opposite views) with Bojack
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This chart doesn’t include dividends.
From 1969 to 1989, Dividends were on average 4.1%.
Sure a 3.168% real annualized return isn’t the best, but it is far from bad.
Even from the top in 1929 you would have positive real return after 20 years.
There is a good video from Ben Felix about the endowment model:
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Here is an update on the Swiss real estate market from Raiffeisen that I found interesting (Fr/De/It). My take aways:
- Prices are going up. Even though prices are dizzying, “everybody who can buy is doing so since owning is less expensive than renting due to the low interest rates”
- Rents are going down, since due to the low interest rates on bonds it is logical for investors to buy and build more rental properties
- Monetary policy is determining property prices. They do not expect interest rates to go up in the short term
What could possibly go wrong?
The study includes an analysis why property is not a hedge against consumer price inflation in the short term. It only works in the long term - which they quote is 10 years but do not elaborate why, example from the 90s shared by xorfish above suggests it can be longer.
I would not consider Raiffeisen’s opinion to be neutral. If more people buy they make more money. If there is a price decline their risk is relatively low since buyers are stress tested and must amortise to 65% debt within 15 years.
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Never seen that
lol
Short term = 4-5 years ?
Hypothetically, if someone took a 10y mortgage with a fixed rate, what would have to happen within that period for him to be worse off than if he was renting? I guess the loss of value would have to be pretty significant, triggering margin calls or being forced to sell at a loss at the end of the lending period.
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And here’s the SNB take on it: Central bank sounds warning about ‘vulnerable’ housing market - SWI swissinfo.ch
(and the original take: Mortgage and real estate markets: Current developments pose risks to financial stability)
Against this backdrop, the SNB currently considers the vulnerabilities on the mortgage and real estate markets to be high. According to its assessments, markets today are more vulnerable to the risks of declining prices and increasing loan defaults. Thanks to substantial capital buffers, however, most banks should be capable of absorbing any associated losses.
So at least while they think it’s overvalued, they don’t think it’s a systemic risk, good news for people not invested in RE 
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I guess the SNB’s bet is that margin call risk is greatly reduced via the 5% affordability check and requirement to amortise to 65% in 15 years i.e. the capital buffers
My belief is that many buyers of high value properties are unaware of the sensitivity of the resale price to interest rates like I tried to explain above up to -1M decline in price on 2.5M property. They may not default, but risk a hit to their NW
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Totally. Nobody is aware that having real estate with a 80% mortgage means being 5x leveraged into the RE market. A -20% drop and your own funds are completely gone.
It’s why I’m not sure if I should buy something in the near future. Financial risk is enormous.
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Everything is leveraged up much more than ever before. In the last cycle a 1% rate increase meant going from (say) 4 to 5%, or a 25% increase in interest cost. Today it means cost double
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It also says:
The SNB believes that up to 30% of newly granted mortgage loans would be at risk of default should rates rise to 3%
That I don’t understand, because the banks calculate 5% to give you the mortgage.
Despite its warning, the SNB is not predicting an imminent collapse of the housing market.
If it’s not collapsing, prices will be the same or increase, right?
Up to 2.5M to me it sounds more in the luxury area, that has a completely different market than <=1M
If you sell…same as stock, right?
Same as leverage on stocks and margin calls, yes.
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-30% I’m good
Everyone keeps saying that interest rates won’t go up anytime soon. Do you think it will collapse anyway?
I have the impression that many people would like to purchase a house, but then with pure math, using numbers and prediction that nobody knows, they defend this theory.
If you don’t care to live in a small (ugly and old) apartment and just work, you will save a lot of money and probably you can retire ad 40, but what about the path to get there?
I think that since I won’t live 1500 years, and after 65 most probably the life will be not so great, why not try to get something that gives me a great benefit?
Of course for someone else it can be completely different, but the pros to buy a house (not from financial prospective) can justify the possible risk (for me).
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It depends on location. Where I live this would buy a normal semi-detached 3 bed house in a middle class area, not luxury. I agree that in other cantons this budget might be for luxury properties.
If the price was 1M the potential delay to FI date due to a price decline is smaller
Anecdotally I have observed prices for houses around here jumping ~15% or more post Covid, to be seen whether that will stick or if it reflects one off demand. But I dont think it is inconceivable they would go down and if it happens I don’t think SNB would classify that as a collapse, rather correction of a blip
The value of your loan may not be higher than 80% of the coverage. If you buy a house for 1’000’000, the bank will give you 800’000. If the interest rate goes up to 3%, not only does it raise the monthly interest paid on the loan, but it can have an impact on the valuation of your house, which serves as coverage for the bank. If the bank says your house is now worth 700’000 and your loan is still 800’000, you are missing 300’000 of coverage. Where will you get this money?
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We did already this discussion. That’s probably the only thing that scares me.
I consider that I can take -30% (or even -40%) along the way in a span of 25-30 years a get (at least) the same price.
Space to build houses will be less and less, inflation will make the cost higher and so on.
You can rent a nice and big apartment, you can even rent a house (admittedly not that popular). But you can’t say that the living standard for a rental property has to be worse.
This is what we’re always trying to calculate. Like I’ve said, you can rent a great place, too. You don’t have to worry about maintenance, about the neighborhood becoming less prestigious etc. This also counts. When you own, you can be sure that nobody will kick you out, and your rent won’t go up. It’s a physical piece of land that belongs to you, which is nice.
But the point of our few last posts is that leveraged investments are risky. You will not buy a house with cash because even if you had this money, even you agree that it doesn’t make sense, right? It’s just so expensive, it’s crazy to pay in cash. But leveraged purchase with the help of mortgage? Yes please.
You will suffer a loss not only when you sell, because you’re on a margin. The bank will become very nervous if the value of your loan exceeds the value of your house. It means that if you would stop paying, they would lose money even if they took over your house and sold it at market price. They don’t want that. But they can do it. and then you lose the house, and you lose your deposit.
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I agree, I was pointing out the worst case scenario (so to save more money), but of course there is always the solution in the middle.
Yes 
I won’t sell, unless I will be forced and I will see what happen during the way and take a decision
I know…probably it’s better if I stop think to that if I want to sleep during the night, but I put that same as I cannot think every day that potentially I can lose my job tomorrow, or I’ll have an accident…because everything is possible.
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