buy before or after prices drop??

spoon_fed05

hi there....i have a question for people that understand house prices and equity (well, just someone that knows more than me on the subject would be useful!).

right, I'm a homeowner and have fortunately made some equity on my house that i bought a few years back (it's my only property btw). if i were to move (to a more expensive place) and of course use the equity i've made to offset on the new place then what would be the effect of a drop/crash/dip in house prices.

or to put it another way, would i be better to move before or after house prices drop (which they surely must do soon!), assuming all house prices drop by the same % at the same time (i know that won't happen but for simplicity's sake assume so!). or is anytime good once you have a foot on the ladder and you don't have negative equity?

baby_boomer

I recommend you sell before prices peak and buy again after prices have fallen.

That way you will make a tidy profit .

I suspect a declining market is often the best time to move up the ladder, but, as ever, it depends on the location of your current and future properties. And expect some dastardly tactics from your buyers if the market has gone into reverse and chains become ever more precarious.

phlash

baby_boomer wrote: »

I recommend you sell before prices peak and buy again after prices have fallen.

That way you will make a tidy profit .

Like the poster above, thats the perfect "investment" decision.

If I were to choose one of the OP's original scenarios, it would be after the crash. Since the size of any loan needed would be smaller, therefore reducing your risk.

Gold_Shogun

Two Options :-

A) ... IF you believe house prices ARE going to drop substantially in the near future ... The most logical thing to do would be to (1) Sell your existing property for top price now, then (2) rent short-term until prices drop relatively low, then (3) buy your next property then.

... IF NOT ... Then it would logically make little overall difference as BOTH existing & new properties should rise pro-rata (the only exception being IF you were selling in a "currently overpriced area" such as say, London, and buying in a "currently relatively underpriced area" such as say Scotland/NE-England).

Dead_Eye_Jones

I'd recommend you buy a house because you want to live in it at the time you want it.

Many people have already sold to rent (STR) with a view of buying back a cheaper house in the future. Problem is, prices have kept going up!

Now ideally you'd be able to sell at the top and buy at the bottom, but unless you get lucky its next to impossible to predict. Prices in your area may not drop massively, the type of housing you are after may not drop, prices may rise for a while yet - they are still going up right now! And after that we may see stagnation or a slow fall. Who knows!

I bought a place recently and maybe I will lose money on it, maybe I wont, but what noone can take away is the fact that I got the place I wanted and have enjoyed living in it. So what if it has cost me more. Sometimes you have to buy at the top of the market, nothing wrong with that - if you can afford to do so!

Best of luck.

spoon_fed05

thanks for the prompt replies!

don't think i could face going back to renting, i've accumulated so much 'stuff' since i bought, the thought of hauling it all about every six months to a new rented place makes me suicidal!

i guess then, while it might mean slightly less risk money wise to buy as prices are dropping, the savings might not be worth it due to potential chain probs as baby boomer eluded to. anyhow, if anything i'm going to try and move to a slightly cheaper area so that might even things out in the rising vs falling market situations.

:beer:

King_Of_Fools

Assume the following simple case:

You bought your house for £100k and it is now worth £150k You had a £80k mortgage and now only owe £75k. Therefore, you have £75k equity in your house at current prices.

If you buy a bigger house now for £240k you will need to increase your mortgage from £75k to £165k (using your £75k equity).

When house prices have fallen by 33% you will still have a £165k mortgage on a house that is now worth £160k.

If you had waited for the house prices to fall by 33% You would have lost £50k of your equity in your original house leaving you with only £25k equity. However, you could now buy the house that was £240k for only £160k so you would have a £135k mortgage on a house that is worth £160k.

So instead of being in negative equity for £5k you still have £25k equity in your new house.

danlightbulb

Refering back to the OP question, his situation is similar to mine so lets put some figures around it.

Lets say you have a house worth £120k which you bought on mortgage for £80k. Thats £40k equity.

Lets say you want to buy a similar house but in a nicer area for £150k. Using equity and after paying fees (£5k) you would need a bigger mortgage of £115k.

Equity wise you are still in a good position in todays market, but if we have a drop then is it better to take the equity hit on your original property or on the new property? In both cases you could be negative, but is it better to be negative on a cheaper property or the more expensive property.

You would still want to sell your original property even if the market crashed. So is it better selling a house for less than you bought it for to move up after a crash?



lol king of fools beat me to it!

prudryden

If prices drop, you may have to act quickly. Evidently, some professional analysts have evidence that a "wall of money" is lying in wait, especially international organizations, such as pension funds, REITs especially British and German, insurance companies, banks for their own portfolios and Far Eastern interests (esp. Indian and Chinese)

baby_boomer

danlightbulb wrote: »

So is it better selling a house for less than you bought it for to move up after a crash?

It's surely an irrelevant. The state of the market is more important than the price you paid for your existing home.

But to take an extreme example.

If house prices fell 99% and you sold your house for £2,000 and you bought a £3,000 house then you'd have probably done pretty well .

danlightbulb

in the king of fools scenario, a big equity cushion saves the OP from being in negative equity after a crash.

what if a crash causes you to go into negative equity on the original house, but you still want to move?