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03/07/2005: "Updated index for: Property myths"

Buy-to-let: bets with the housekeeping
The buy-to-let fashion has shifted ownership to amateurs, including households whose high-priority financial objectives are put at risk by this business they are ill-equipped to run. This article, based on a real 'money makeover' Stuart did for the FT, examines the inconvenient economics of buy-to-let in terms of i) business cash-flow variance and ii) the long-term likely payoff in real total returns: absolute, relative to required risk premiums and compared with other assets.

House prices: crash postponed or crash avoided?
This updates an earlier article ("Through the Roof", January 2006 - now removed) with house price data through June 2006. The fundamental explanation of the trend and cycle of real house prices (they must be 'real') is explained in terms of 'economic equilibrium': irresistable correcting forces within an economy. Equilibrium can be re-established by a bear market (as in the past) or by a prolonged period of flat real prices until the sustainable trend of about 2% pa 'catches up' - as the 'bulls' seem to hope. The latter is highly unlikely and is potentially even more lethal for borrowers than a bear market.

The first crash to feel like a crash
Stuart Fowler's FT letter, June 2004, together with chart of real house prices relative to post-1957 trend (updated through December 2004). Beliefs about the bubble are likely to have been distorted by 'money illusion'.

What parents tell the children about property
Parents are largely to blame for perpetuating an obsession with 'getting on the property ladder'. This item looks at how wrong we can be about the real costs and benefits of owning our own home.

Money illusion
The failure to distinguish what is really happening to asset prices by adjusting for the effect of general inflation in prices is called 'money illusion'. As the items above suggest, money illusion is a contributor to popular misconceptions about house prices. As this 2003 FT article pointed out, there are other examples of how money illusion has cost individual investors dear.