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George

Prices Are Falling Not Going Up

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I last looked at a top floor apartment last year priced at £155,000 at that time they were offering it at £152,000. Then I think it sold or something or they put it in hand of an agent im not sure. I did a search on wrongmove and found it for sale at £148, 950. Then this last week its dropped to 145k. :) I still think its overpriced, as there is a glut of apartments and selling them would prove difficult imo.

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I think there is a word of warning here. We are all getting quite excited because of the things we are seeing that confirm our predisposition. Certainly I am anyway. But I think there are going to be false springs on the way down, and to protect our mental health's we need to continue to concentrate on the big picture (the fundamental law of the economic cycle) even when the indicators start saying contrary things.

A friend of mine in Oz sold his house when house prices had dropped about 11% and stablised. He was of the belief for economic reasons that this was mearly a plateau rather than the bottom. He has bought again and I don't believe that he bought at the bottom but he didn't need to. What he need and therefore did was wait until he could get what he wanted at a price that he could treat as no different to renting.

The reason I say this is because I just checked my crap-o-meter which I haven't done since September last year. The number of low grade listings has dropped markedly in London and the 10 miles around. This could be for any number of reasons. It may be because sellers are starting to take more realistic offers, it may be that a little bit of confidence has returned, it may be that rightmove has cleared out its rubbish double listings. Whatever the case while it works as a morale booster, I can't rely on it too much.

What I am remembering is that the fundamentals are not reflected in house prices, global friction, oil price rises, global economic patterns, affordability in relation to wages in a rising unemployment scenario, rental yields, and until they are then it is a bad market to be in. Until the difference between renting and buying is nothing, I am staying out.

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Until the difference between renting and buying is nothing, I am staying out.

Don't be fooled into this one. Renting should always be cheaper than buying. Imagine house prices don't change. There is a little bit of inflation. You decided to compare buying a house with an interest only morgage compared to renting.

Over time, your morgage interest payments will remain steady, or go down in real terms. Your rent will go up or remain steady in real terms. Because of this, if your landlord looks at the long term, or more importantly you look at the long term, you should expect to pay more each month initially for the house, but over the long term, pay less than renting as the rent payments increase.

How much more you should be paying for a morgage compared to rent depends upon your view of wage inflation, rent inflation and house price inflation. When I ran a model of this, for all but the most modest house price inflation, buying is more favourable than renting. I am only renting because I like the flexibility it gives me.

I am hoping house prices go down, but you have to be realistic.

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Don't be fooled into this one. Renting should always be cheaper than buying. ...

I am hoping house prices go down, but you have to be realistic.

All of this works fine until you realise that in the mid to late 1980s interest rates hit 17% (I remember. It was the first time I got some real good mulla out of a deposit) and in the late 80s early 90s house prices caught up and tumbled. It took 3 years from cause to effect.

"When I ran a model of this, for all but the most modest house price inflation, buying is more favourable than renting. "

You made a small loss on your model for modest inflation.

Did you factor in house price deflation and what your loss would be then. My view is that over time we will experience cyclic deflation and that is when that deflation reaches a point where it is cheaper to buy than to rent that I intend to pounce.

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Don't be fooled into this one. Renting should always be cheaper than buying. Imagine house prices don't change. There is a little bit of inflation. You decided to compare buying a house with an interest only morgage compared to renting. You don't buy a house with an interest only mortgage - you rent it from a bank.

Over time, your morgage interest payments will remain steady, or go down in real terms. Not if interest rates go up. Your rent will go up or remain steady in real terms. Because of this, if your landlord looks at the long term, or more importantly you look at the long term, you should expect to pay more each month initially for the house, but over the long term, pay less than renting as the rent payments increase.

How much more you should be paying for a morgage compared to rent depends upon your view of wage inflation, rent inflation and house price inflation. With an interest only mortgage compared to renting - there is no point paying more - unless you expect house price inflation. Personally, I don't expect any real house price inflation for at least 10 years and maybe never - we have a new global economic paradigm now and we will not be able to live like kings in this country, compared to the countries which produce the goods we consume, forever. When I ran a model of this, for all but the most modest house price inflation, buying is more favourable than renting. I am only renting because I like the flexibility it gives me.

I am hoping house prices go down, but you have to be realistic.

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When I was looking at buying, I assumed constant levels of the various inflations and looked at my total value in 25 years time (when a repayment morgage will be repayed) Over 25 years, I will confidently say house prices will go up, as will the cost of a loaf of bread, a carrot or a fine mahogany dining table. Over 5 years, I haven't got a clue. My argument is, on a long term basis, buying is better than rent. I will only get a repayment morgage, and the faster you repay the morgage, the better off you will be in the long term.

I personally have 2 strategies based on my current situation.

1) buy a first time buyer property now with my sizable deposit I have saved up in the last few years, and pay off the morgage in 5 years, rent it out and with the additional income and my job income, buy a larger house to drag u pa family.

2) continue saving so that I can miss the first rung or 2 of the ladder, hoping hosue prices come down, and buy a house I want to live in for the rest of my life. After that I wouldn't give a care to house prices as they wouldn't affect me.

I am working towards option 2 at the moment

Marina, I think your assumptions are ill founded. I hate to sound like a BTLer, but why, when looking at a purchase you will be making for the long term, would you assume interest rates will be steady at the highest rate they were last century. even if interest rates go up, buying is a better long term option. I think I based my model on 8% interest rates and about 5% house price inflation, with rental payments increasing by around 3% per year.

Editted to add: There are always good times and bad times to buy things. Circumstances permitting, buy when things are cheap, but don't miss an opportunity just to be stubborn.

Edited by Imp

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  • 301 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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