House Price Crash

westernpromise

jezebel wrote:

I'm a twenty-something now but have been saving regularly since I was 16. I have a credit-card which I only use for emergencies and large purchases for the sake of the added insurance (which I pay off at the end of every month). I don't go out more than about once a month which includes trips to pubs/cinema/hanging out with friends. I put away any "disposable" income I may have after the month of required spending into a savings account....

I want to marry you.

CB1979_2

westernpromise wrote:

I want to marry you.

jezebel's real name is Jeremy!:eek:

manhattan

CB1979 wrote:

jezebel's real name is Jeremy!:eek:

checkout westernpromise avatar! (the tight leathers) gives you a clue lol















(joke)

westernpromise

manhattan wrote:

checkout westernpromise avatar! (the tight leathers) gives you a clue lol(joke)

You just dissed the Hoff!!! 8-o

Who cares if Jezebel's a bloke. I could turn queer for someone with that attitude to money...

manhattan

yeah sorry NEVER EVER diss the HOFF! lol

PoorDave

RHemmings wrote:

As an analogy, nobody knows when Blair will go. But it's still possible to discuss what the situation might be, how he might go, and who might replace him. You couldn't say that because we don't know the facts we can't say whether Gordon Brown or Martin Lewis is more likely to succeed him as prime minister when Blair goes.

Hmm. Martin Lewis as Prime Minister?

All those in favour...

RHemmings

westernpromise wrote:

Broadly speaking, Mrs Optimist, if you are trading up you want prices to crash, and if you are trading down, you want them to rise.

If you're in a £200k house and you want to buy a £350k house, you need to find another £150k. If the market crashes 40%, your current house is worth £120k, and the one you want is worth £210k. So now, you only need to find another £90k. This, not surprisingly, is the original £150k difference, less the same 40% drop.

Now that you've posted that, one thing that all of my posts and your posts miss out on is that money isn't everything. It could be that the bigger house will give them a better quality of life. And it could be that after working through all the numbers, Mrs Optimist decides that the likely additional cost of one strategy over another is worth the benefits. But I still think it helps a lot to know how much an improvement in living standards is costing.

RHemmings

PoorDave wrote:

Hmm. Martin Lewis as Prime Minister?

All those in favour...

Alvin Hall as deputy, and I'm in.

Gorgeous_George

RHemmings wrote:

You have £131,000 equity in your home, plus FIL's £100,000. You wish to buy a property costing (averaged) £275,000. That would require (ignoring moving costs and the like) a mortgage of only £43,000.

If house prices were to drop 20%, then you would have £97,000 equity in your home. Plus FIL's £100,000 that would be £197,000. But the house you would want to move to would be worth £220,000. So you'd need a mortgage of £23,000.

If you buy now and prices drop 20%, then you'd have a house worth £220,000 and a mortgage of £43,000, so you'd have equity of £177,000. If prices drop 20% and then you buy, you'd have equity of £197,000. In both cases plus the repayments you've made since you bought.

These sums are over-simplisitic as I haven't counted things such as lost opportunity cost of the £100,000. I.e. the interest on that money if invested.

In my opinion, from a financial point of view these are the kinds of calculations you need to do. Work out a whole lot of scenarios, and work out what it means for you if each of these scenarios come true. Many people seem to ask "should I buy or should I not buy" and get some "yes you should buy" or "no you should not buy" answers, often without any explanation as to why people think these things.

Also in my opinion, if you're making financial decisions of the magnitude you are, you need to look very carefully at all possible eventualities, and come to your own opinion as to what might or might not happen. But it's no good deciding that you think there will be a correction of 10%, or if prices will double in the next 10 years as some tabloids claim, without working out what these eventualities mean for you.

Edit: There are some trivial arithmetic errors here. Embarrassing, but not bad enough to be worth changing as the basic message doesn't change.

Why no 'what ifs' should prices rise by 20%?



GG

RHemmings

Gorgeous_George wrote:

Why no 'what ifs' should prices rise by 20%?



GG

It was a sample calculation, and I did say to do the sums for all possible eventualities.