does buying at the top or bottom of a market really matter?

dannyboycey

LittleMissAspie wrote: »

We could use my house as an example. I'm renting.

It was last sold in 2006 for £137,500. We are paying £630 rent. A repayment mortgage (say 25 years at 6% and no deposit) would be £896.34.

Okay so in 5 years time, Mr Buyer will owe £122,641 (according to snowball calculator). Let's say that prices drop just 10% in that time. The house is now worth £123,750. So Mr Buyer owes £122,641 and has 1% equity.

Meanwhile, Mr Tenant has been saving the difference between the rent and would-be mortgage. He saves £266.34 per month for 60 months. This gives him a deposit of £15,980. (I've assumed that Mr Tenant's rent stays the same. But I also didn't include any interest from his savings. They would probably cancel each other out.) He now goes to buy my house for £123,750. Mr Tenant now owes £107,769 and has 12.9% equity.

Looking at it even longer term, Mr Buyer will take 290 months (24.1 years according to snowball calculator, not sure why it's not 25 precisely) in total to pay off his mortgage. Mr Tenant can also pay £896.34 on his smaller mortgage and pay it off in 183 months. Add on the 60 months that he spent saving and Mr Tenant is mortgage-free in 20.25 years. 4 years earlier than Mr Buyer, and he didn't pay a penny extra.

In reality, there's a good chance Mr Tennant (not Dr Who), has been stashing away even more than the difference. If he's on average salary and has average outgoings, perhaps more than double the difference! He now has a deposit of £40,000 (which by the way, earns him a tidy sum in interest each month).

Meanwhile, Mr Buyer's boiler packed up, he had to replace his guttering, and he has been paying quite a bit for insurance.

setmefree2

!!!!!!? wrote: »

Given the balance of probabilities on the basis of the available evidence buying right now on the notion that prices will eventually recover at some undefined point in the future is just plain stupidity.

Why? If "prices always fall" - the same can also be said "prices always go back up again". Not everyone wants to rent for the next 2 years (or however long it takes). For most people their house is their home, not an investment. Of course I'm not saying I would buy right now if I was a FTB, but I can understand why someone might especially if they could see themselves staying in their property for quite awhile. Are you saying that prices wil never recover?

setmefree2

dannyboycey wrote: »

In reality, there's a good chance Mr Tennant (not Dr Who), has been stashing away even more than the difference. If he's on average salary and has average outgoings, perhaps more than double the difference! He now has a deposit of £40,000 (which by the way, earns him a tidy sum in interest each month).

Meanwhile, Mr Buyer's boiler packed up, he had to replace his guttering, and he has been paying quite a bit for insurance.

Of course:D - or Mr Buyer with his nice low interest rate has decided to overpay his mortgage and get rid of it quickly. Which just shows how complicated it all is.;)

MrDT

setmefree2 wrote: »

Why? If "prices always fall" - the same can also be said "prices always go back up again". Not everyone wants to rent for the next 2 years (or however long it takes). For most people their house is their home, not an investment. Of course I'm not saying I would buy right now if I was a FTB, but I can understand why someone might especially if they could see themselves staying in their property for quite awhile. Are you saying that prices wil never recover?

I can't see anywhere that !!!!!! said prices won't ever recover... What I do see is that !!!!!! states that 'buying right now on the notion that prices will eventually recover at some undefined point in the future is just plain stupidity', which is, of course, correct.

Not very MSE to suggest buying something now that will most likely cost considerably less in a little while surely? Individual cirumstances might mean that buying a house right now would be the right thing to do emotionally, but as far as the financial side is concered, it's insanity, and we're talking financials here right?

LittleMissAspie

setmefree2 wrote: »

You have not included:-
1) any sales costs from the sale of your house which wouldn't have happened if you hadn't sold it
2) the loss of the amount of money that you would have made in 2006 & 2007
3) any fee for arranging a new mortgage (now 4 figures)
4) the cost of the loss of interest because last year you could have negotiated yourself a much better interest rate (much better than 6%)
5) any purchase costs of buying your own house back again

I'm not saying you can't make money but the above will eat into alot of your profit.

1) Eh? Neither Mr Buyer or Mr Tenant is selling a house. They're buying it and living in it for 25 years.
2) We're pretending Mr Buyer bought it at the top of the market vs bottom, so there would be no gains.
3), 4) and 5) You have to assume that Mr Buyer and Mr Tenant have the same costs for things like mortgage fees, stamp duty and interest rates, otherwise you can't possibly compare the two. Not sure what you mean about buying the house back again. They've each bought one house, once.

setmefree2 wrote: »

Of course:D - or Mr Buyer with his nice low interest rate has decided to overpay his mortgage and get rid of it quickly. Which just shows how complicated it all is.;)

So can Mr Tenant then. It's not really that complicated. There's a lot of variables, but the one the thread is about is buying at the top vs buying at the bottom. All other things being equal, Mr Tenant will be mortgage-free earlier than Mr Buyer, even though their monthly outgoings were exactly the same.

setmefree2

LittleMissAspie wrote: »

We could use my house as an example. I'm renting. It was last sold in 2006 for £137,500. We are paying £630 rent.

I was talking about this bit. You sold your house. You must have costs associated with the sale? You sold in 2006. The housing market moved up in 2006 and 2007. You must have missed out on those gains? You have to buy your/a house back again? You could have had a better interest rate if you'd taken a deal in 2007. If you had stayed put you would not have incurred any of these costs, so therefore they must impact whether you are better off or not?

setmefree2

MrDT wrote: »

I can't see anywhere that !!!!!! said prices won't ever recover... What I do see is that !!!!!! states that 'buying right now on the notion that prices will eventually recover at some undefined point in the future is just plain stupidity', which is, of course, correct.

Not very MSE to suggest buying something now that will most likely cost considerably less in a little while surely? Individual cirumstances might mean that buying a house right now would be the right thing to do emotionally, but as far as the financial side is concered, it's insanity, and we're talking financials here right?

Sorry I can't see where I was suggesting anybody should buy now I was merely saying that prices will recover and 10 years from now no-one will remember any of this.

m00m00

setmefree2 wrote: »

Sorry I can't see where I was suggesting anybody should buy now I was merely saying that prices will recover and 10 years from now no-one will remember any of this.

people still remember and talk about the crash of nearly 20 years ago

boinging_2

setmefree2 wrote: »

Sorry I can't see where I was suggesting anybody should buy now I was merely saying that prices will recover and 10 years from now no-one will remember any of this.

But surely it is better to buy now than in August 2007 and better still at current trends to buy in Dec 2008?

Of course prices will probably rise again, in the last 9 months it would have been better to rent and save than buy.

boinging_2

setmefree2 wrote: »

Do you know, it makes you wonder though doesn't it ?- if prices do fall say 30-50% whether property will ever be seen in the same way again? At the back of the Sunday Times money section they interview celebs every sunday, when asked what their best investment has been they always say property. Often when asked if they have a pension thay say no- I invest in property. How high risk is that? For a generation that (possibly) is going to live through two crashes I'm not sure property will be seen the same way again:rolleyes:

Errr... okay.

All hail the might of the celebrity.