I was fortunate to complete my sale at an agreed price set in Nov 2007 and my personal view is that we will continue to see an acceleration in the fall in house prices for a minimum of the first three months of 2009.
An optimistic view is that the rate of decline might begin to fall at around Easter 2009, however history indicates that prices will continue to fall gradually for at least a further two or three years before a recovery begins.
We should not expect prices to climb back to 2007 levels for around ten years or so
Of course, I’m referring to real inflation adjusted prices, so this all depends on how successful our Government’s policies turn out to be, which many might consider to be anyone’s guess
I’m personally a little worried that there does seem to be a real possibility of us briefly creeping into deflation before galloping out of control into hyperinflation, probably caused by memories of Harold Wilson & Jim Callaghan I suppose.
Anyway, none of this tells us when to buy back into property.
I wont be interested in the buy-to-let scenario for probably at least five years, since without significant property price increases it’s a lousy investment.
However for owner occupier purposes the buy back moment must surely be when the rate of property price decline no longer exceeds the overall cost of renting, taking into account investment returns on capital (if any ) and tax implications etc.
So the time to buy would seem to be whilst the property prices are still falling.
If interest rates remain low, then return on capital stays low, and consequently we move closer to the point where we should buy back into property.
So let’s say that you currently pay £750 per month rent for the house, which you earlier sold for £250,000 at the top of the market in 2007. To make it easy let’s say you didn’t have a mortgage, and you sensibly deposited your cash into five different banks. However you didn’t want to lock up your money for an extended period, because you wished to retain maximum flexibility to pounce on a good deal when the right moment arrived.
Well right now you would be getting somewhere around 2% net on your capital = £5,000pa.
On the other hand your rent would be £9,000pa so your net cost of renting would be £4,000pa.
In theory therefore the right moment to buy back into the market is when the rate of falling prices causes your original property to lose less than £4,000pa or 1.6%.
That ought to provoke some interesting response