buy before or after prices drop??

Rimo2021

spoon_fed05 wrote: »

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?

It's a no brainer.

From a purely financial point of view:
If you believe prices will go up move now.
If you believe prices will go down move later.

Messsiah

Rimo2021 wrote: »

It's a no brainer.

From a purely financial point of view:
If you believe prices will go up move now.
If you believe prices will go down move later.

QFT !

~M~

franklee

King_Of_Fools wrote: »

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.

Always assuming of course that the OP can obtain a mortgage of that size. In the event of a crash lenders will IMO become more cautious so I'd expect the old multiple of salary rules to come back, you'd only be able to borrow 3.5 times salary. So if buying on one salary you'd need to be earning 38.5K to get a 135K mortgage.

Eyesparky

Assuming you can pick the timing of the crash perfectly and sell your house in a timely fashion - I suggest you sell before the crash, take your equity and invest it in a nice juicy over the counter derivative playing on all the property downturn factors and hopefully multiply your equity to the extent that after the crash you will be able to buy a much bigger house for cash. If you can't get access to the derivatives market directly just take a spread bet out on the inevitable downturn ... with good timing and a strong enough multiple on your bet you should be quids in. Of course, all this is dependent on picking the time of the crash accurately .

Snow_Dog

What most people seem to forget is the value of housing is not linear.

While the house that you are in now may drop 30% in a 'crash' the house you want to buy may be in a popular area where the housing stock may only drop by 10%.

This is the same as saying there are safer stocks to be holding if the stock markets fall back.

So the house you have now worth £100K, with say £50K mortgage, drops by 30%, its now worth £70K and your equity is £20K.
Your dream house that was worth £200K drops by 10%, is still worth £180K.

So the house you could have moved up to with a £150K mortgage, you would now need £160K mortgage to buy. In a time when credit lending is tighter and your deposit has dropped to £20K.

In summary its all a gamble and noone knows the definative answer.

kingkano

If its your home and you dont intend to move for a while, buy whenever you want, get a long term fix or something and dont panic!

I agree with a post above, its useless to work out equity's and stuff from drops, because banks WILL tighten lending criteria. What you could have afforded before with 5x salary, you probably wont be able to afford even after a 30% crash with only 3 or 3.5x salary. Assuming all properties 'crash' at the same rate too! Some areas will still suffer supply and demand problems and some properties will be scarcer (ie not many BTL get 4 bedroom detached houses....)

epz_2

Gold_Shogun wrote: »

(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)[/I].

scotlands not underpriced, its wages are lower, there is a declining population and there is massive amounts of land and infrastructure available should you want to build more houses.

by comparison to london its cheaper but by the local fundimentals it is also overpriced.

back to the question, basicly do you think your house is going to be a desirable on in a declining/corrected market.

if for example you have something thats going to be up against the btl fodder or need to move eg kid on the way etc and can afford it i would do so. if on the other hand you just want to go up the ladder i would hold off, see how 6% rates affects the market and save some cash.