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

simcla

I'm not talking about FTB who are renting or people wanting (or willing) to STR. Houses on the road where I live road were going for 112K approx 4 years ago. Modern (but not new build) detached houses on a nice estate were 215k so the differential is 102k . Last year 160k and 240k so 80k differential. This year 125k and 200k so 75k differential. It is easy to look at a market in hindsight and say where the peak or a troughs are in any market but it is not so easy at the time, so there is always a risk in STR. These are actual house sale prices, not predictions... and bearing this is mind, The wrong time based on these actual sale prices was 4 years ago, not last year , and certainly not the start of this year. I had the most equity in my house last year but it will cost me less to move this year. And yes I could have sold my house last year but I didn't want to as I didn't want to take a risk on STR in a market that at that point was still climbing...Your figures are theoretical, house price may not reduce by 20% across all house types in all areas (thus reducing the purchase cost of your chosen next property if you sold at the peak and accurately predicted the trough) and rents may increase (thus eroding your saving potential) so your 'simplified example' may not be entirely accurate.

Kez100

my theory for what its worth. House prices have gone up over the years based on only a few things - wage inflation, changes in borrowing levels - like when the banks started to accept joint earnings and in recent times up to ridiculous multiples, and the change in the law to allow ASTs which enabled banks to agree to lend to rent.

The last crash was based on unemployment and so the market recovered once employment and sentiment did. We then saw a mega increase as the two latter factors I mention took hold in the late 90s early 00s. Borrowing under both of those has been slashed overnight so no
way will the Market be able to sustain todays prices. Recovery to todays prices will rely on borrowing levels returning or wages catching up. Its going to be a very long time in my mind.

borntobefree

Kez100 wrote: »

Recovery to todays prices will rely on borrowing levels returning or wages catching up. Its going to be a very long time in my mind.

Alot of people have "invested" in property, as opposed to just buying a home. If they get seriously burnt you do wonder what effect that will have have on the market. Maybe they will just ride out the drop in the rental market and still make money on the upturn, whenever that is.:rolleyes: It's hard to know how much of the current/recent bubble was due to investors.

WTF?_2

simcla wrote: »

I'm not talking about FTB who are renting or people wanting (or willing) to STR. Houses on the road where I live road were going for 112K approx 4 years ago. Modern (but not new build) detached houses on a nice estate were 215k so the differential is 102k . Last year 160k and 240k so 80k differential. This year 125k and 200k so 75k differential. It is easy to look at a market in hindsight and say where the peak or a troughs are in any market but it is not so easy at the time, so there is always a risk in STR. These are actual house sale prices, not predictions... and bearing this is mind, The wrong time based on these actual sale prices was 4 years ago, not last year , and certainly not the start of this year. I had the most equity in my house last year but it will cost me less to move this year. And yes I could have sold my house last year but I didn't want to as I didn't want to take a risk on STR in a market that at that point was still climbing...Your figures are theoretical, house price may not reduce by 20% across all house types in all areas (thus reducing the purchase cost of your chosen next property if you sold at the peak and accurately predicted the trough) and rents may increase (thus eroding your saving potential) so your 'simplified example' may not be entirely accurate.

Never mind STRing and so forth - that's just an example of the most efficient thing to do financially if you can manage to accurately and consistently call the top/bottom of the market (which is the really tricky thing) and as I pointed out, won't suit everybody's circumstances.

The vital thing is not to overpay for any property, but especially not your original one because that's the base for all future steps on the property ladder.

If you overpay for property 1 by buying at the peak then even if the differential to property 2 is quite small at time of sale, you are still worse off than as if you had paid less for property 1 by either waiting a year or two until prices had dropped or by buying it well before prices peaked.

It's really that simple.

Telling yourself that it's OK to pay over the top for a property just because you can make it back up in the future when you sell to trade up is delusional. You can certainly make the best of your position by making sure you make a smart buy on the next property but if you pay, say, 20% more than you needed to for the first property that represents lost equity that's never going to come back.



Anyone considering buying now should take into account that the market has just come off a peak. No-one is predicting a recovery in prices any time soon and estimates of the fall over the next few years range from 10-30%, with many predicting 20%.

Therefore the only people who should be thinking of moving on the ladder right now are the people who are going to want to trade down. The sooner they do it, the more of their equity they can withdraw in the down trade because they'll lose equity as the market falls: The steps get closer in a falling market, further apart in a rising one.

LillyJ

neverdespairgirl wrote: »

My parents bought their main house in SE London for £495k in 1993, which was pretty near the bottom of the market. They have now paid off that mortgage, and the house is worth ITRO £2.5 million.

My parents, conversley, bought at the peak, and paid £225. Theirs is now worth about £1 million, maybe a tad more. So they haven't "made" as much money as your parents, but are mortgage free and have been for years and years (they paid off mortgage very quickly in their early 30s). If they want to sell (which they don't really) then they will have a nice little sum of money. They bought the house with small children (it is a 5 bed) and now both kids have left home and it still suits their needs (they are late 40s and early 50s).
I suspect they will downsize when they are older but they are already retired and mortgage free so living a pretty nice lifestyle.
Buying at the peak most certainly wasn't the financial suicide that most consider it to be for them.

IMO the most important factors in this are the fact that they could easily afford the mortgage, were in secure, well paid jobs, and the house suited their current AND future needs. I used these factors when I looked at houses as well.

boinging_2

LillyJ wrote: »

My parents, conversley, bought at the peak, and paid £225. Theirs is now worth about £1 million, maybe a tad more. So they haven't "made" as much money as your parents, but are mortgage free and have been for years and years (they paid off mortgage very quickly in their early 30s). If they want to sell (which they don't really) then they will have a nice little sum of money. They bought the house with small children (it is a 5 bed) and now both kids have left home and it still suits their needs (they are late 40s and early 50s).
I suspect they will downsize when they are older but they are already retired and mortgage free so living a pretty nice lifestyle.
Buying at the peak most certainly wasn't the financial suicide that most consider it to be for them.

IMO the most important factors in this are the fact that they could easily afford the mortgage, were in secure, well paid jobs, and the house suited their current AND future needs. I used these factors when I looked at houses as well.

In todays world though how would a mid 20's couple afford a 5 bed house?

boinging_2

borntobefree wrote: »

Why do you think prices will rise again?

Personally I believe in cycles so eventually prices will begin to rise again.

How long this takes to happen is the critical question potentially 2 - 3 years maybe 5 years - who knows but I'll be watching very very carefully.

LillyJ

In todays world though how would a mid 20's couple afford a 5 bed house?

Some people can! I don't actually think that they needed/need a 5 bed, a 3 bed would have sufficed seeing as they had only 2 daughters.
And some mid 20's couples (like me!) can afford 3/4 bed houses. If I had borrowed the amount halifax lent us I could have afforded a 5 bed round here. Admittedly my parents were in the home counties so it would be difficult now but like I said if you have a good income then it would be fine.
They were actually on their 3rd house when they bought that one as well, they had had 1 flat and one 3 bed house before this one.
I am just trying to make the point that it is all about circumstance.

LittleMissAspie

setmefree2 wrote: »

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?

No the house that sold in 2006 is the one I'm renting right now. I've never bought or sold a house, I hope to be a FTB when prices come within our reach. I used it as my example because I have numbers for it, I know how much it cost and I know how much I'm renting it for. Real-life numbers.

boinging_2

LillyJ wrote: »

Some people can! I don't actually think that they needed/need a 5 bed, a 3 bed would have sufficed seeing as they had only 2 daughters.
And some mid 20's couples (like me!) can afford 3/4 bed houses. If I had borrowed the amount halifax lent us I could have afforded a 5 bed round here. Admittedly my parents were in the home counties so it would be difficult now but like I said if you have a good income then it would be fine.
They were actually on their 3rd house when they bought that one as well, they had had 1 flat and one 3 bed house before this one.
I am just trying to make the point that it is all about circumstance.

The point I'm making is £225K was a hell of a lot of money 25 years ago!