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If you don't own a home by your 40s, you never will. And you'll end up poorer than those who do.; Silly bears who think they can rent their way to wealth are only fooling themselves...
Topic Started: 10 Oct 2016, 07:29 AM (8,614 Views)
Terry
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Khaderbhai
11 Oct 2016, 12:00 PM
Inflation isn't assumed to be -2% Roddy. It's a conditional statement.

If average inflation is higher than -2% pa then buying wins compared to renting over 70 years.

If I say "if it rains tomorrow then I'll get wet", I'm not assuming it will rain tomorrow. I'm making a conditional statement.

Logic 101 Roddy.
2% deflation over 70 years will mean a million dollar price tag today will be approx $240,000 in 70 years. A lot of opportunity cost there mother cat. Secondly, if you assume price deflation of 2% on house prices over 70 years, isn't it mathematically broken to assume 2% deflation on the rental cost?
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Khaderbhai
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Terry
11 Oct 2016, 12:12 PM
if you assume price deflation of 2% on house prices over 70 years
I don't assume deflation of 2% pa over 70 years Roddy. Not while the RBA has a mandate to inflate prices by 2-3% pa.
Edited by Khaderbhai, 11 Oct 2016, 12:16 PM.
Banks can't repossess your home simply because the market value falls. Australia's Consumer Credit Code says consumers aren't liable for things ordinarily outside their control and can't be held to obligations that could only be met by selling their home. Click for details.

"The truth is that there are no good men, or bad men. It is the deeds that have goodness or badness in them. There are good deeds, and bad deeds. Men are just men."
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Terry
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Khaderbhai
11 Oct 2016, 12:16 PM
I don't assume deflation of 2% pa over 70 years Roddy. Not while the RBA has a mandate to inflate prices by 2-3% pa.
Oh, I see. The assumption is based on central govt policy for the next 70 years, which is similar to today and has only been a policy since the Kiwis adopted it in the mid- to late-80s. OK sure, if you say is important for the robustness of your assumptions, it's your repertoire.

So what happens if the inflation rate is 3% for the next 70 years? Will "3" be applied to house prices and rents? Why?
Edited by Terry, 11 Oct 2016, 12:27 PM.
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Khaderbhai
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Terry
11 Oct 2016, 12:21 PM
what happens if the inflation rate is 3% for the next 70 years? Will "3" be applied to house prices and rents? Why?
Just use Excel to work through some calculations using your preferred growth rates for CPI, house prices and rents. Personally, I think inflation is more likely than deflation over the next 70 years, and that's one of the reasons I own property. But you can plug in negative rates for everything over the 70 years if that's your base case, and then just keep renting and telling yourself it's the cheaper option.
Edited by Khaderbhai, 11 Oct 2016, 12:35 PM.
Banks can't repossess your home simply because the market value falls. Australia's Consumer Credit Code says consumers aren't liable for things ordinarily outside their control and can't be held to obligations that could only be met by selling their home. Click for details.

"The truth is that there are no good men, or bad men. It is the deeds that have goodness or badness in them. There are good deeds, and bad deeds. Men are just men."
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Terry
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Khaderbhai
11 Oct 2016, 12:33 PM
Just use Excel to work through some calculations using your preferred growth rates for CPI, house prices and rents. Personally, I think inflation is more likely than deflation over the next 70 years, and that's one of the reasons I own property. But you can plug in negative rates for everything over the 70 years if that's your base case, and then just keep renting and telling yourself it's the cheaper option.
OK, so the assumptions are based on "personal preferences". I'd actually say it's also based on what you want to believe and what is intellectually the easiest for you to deal with (don't be offended. Most suburbanites have an automatic default in this respect).

Appreciate your honesty mother cat.
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Khaderbhai
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Terry
11 Oct 2016, 12:45 PM
OK, so the assumptions are based on "personal preferences"
No Roddy, I worked the math based on various assumptions, from -3% to +3% inflation.

If inflation is above -2% then buying is the better option. Math 101. My 'personal preferences' have no bearing on the conclusion.
Edited by Khaderbhai, 11 Oct 2016, 12:53 PM.
Banks can't repossess your home simply because the market value falls. Australia's Consumer Credit Code says consumers aren't liable for things ordinarily outside their control and can't be held to obligations that could only be met by selling their home. Click for details.

"The truth is that there are no good men, or bad men. It is the deeds that have goodness or badness in them. There are good deeds, and bad deeds. Men are just men."
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Terry
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Khaderbhai
11 Oct 2016, 12:52 PM
No Roddy, I worked the math based on various assumptions, from -3% to +3% inflation.

If inflation is above -2% then buying is the better option. Math 101. My 'personal preferences' have no bearing on the conclusion.
OK, so you've modeled buy / no buy across all data points on a scale from -3 to +3. Very good.

How did you do that MC? From the mathematical understanding you display, it's hard to imagine that you can do this. In that case, you must also understand the inflection points based on your model to understand when it is better to rent than to buy.

Of course, I think it's ridiculous to say that house prices and rents increase at x% pa over 70 years. Secondly, the relationship between rent and house prices would / should be accounted for in a robust model/ Did you do that? Given your distaste of the mention of multivariates, I find it hard to believe you would / could.
Edited by Terry, 11 Oct 2016, 01:04 PM.
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Khaderbhai
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Terry
11 Oct 2016, 01:03 PM
How did you do that MC
Excel Roddy, but it's probably beyond your capacity.

Quote:
 
it's ridiculous to say that house prices and rents increase at x% pa over 70 years
The fact that prices/rents will increase/decrease by a value (X) over 70 years is indisputable Roddy.

X could be zero or any positive/negative number, and X may or not be the same value for prices and rents.
Edited by Khaderbhai, 11 Oct 2016, 01:14 PM.
Banks can't repossess your home simply because the market value falls. Australia's Consumer Credit Code says consumers aren't liable for things ordinarily outside their control and can't be held to obligations that could only be met by selling their home. Click for details.

"The truth is that there are no good men, or bad men. It is the deeds that have goodness or badness in them. There are good deeds, and bad deeds. Men are just men."
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Matthew
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Terry
11 Oct 2016, 02:56 AM
let's take a worse case scenario and all those P2P loans go belly up in the next hour.
Even in the worst case that wouldn't happen.

Come on Terry if you want to pretend you are intelligent don't post shit like that
My only hope for my three boys is that they turn out nothing at all like Chris.
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Terry
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Khaderbhai
11 Oct 2016, 01:08 PM
Excel Roddy, but it's probably beyond your capacity.


The fact that prices/rents will increase/decrease by a value (X) over 70 years is indisputable Roddy.

X could be zero or any positive/negative number, and X may or not be the same value for prices and rents.
Sure you did MC. If you did model this, you would definitely something a bit more powerful than "Excel". You would need a simulator that is able to calculate all combinations of data points between 3 and -3 between the two variables and show option is better between them. Of course, you're welcome to explain your model. You won't because you are unlikely to have the ability to build the simple model as described.

You're welcome to add some credibility to repertoire.
Matthew
11 Oct 2016, 02:05 PM
Even in the worst case that wouldn't happen.

Come on Terry if you want to pretend you are intelligent don't post shit like that
Well no Uncle Matty. It takes at least 6 months for a loan to default. Just simplifying to get to the worse case scenario where 100% of loans default.
Edited by Terry, 11 Oct 2016, 02:16 PM.
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