Is it the right time to buy?

[gkd_uk]

Hi

Do you think it is the right time to purchase a property now or should one wait?

[James]

Yes it is the right time as long as you have a good deposit and are in it for the long game. i.e. don't expect to make anybody in the next five years.

[Paul Carcone]

My advice would be to hold at the moment and invest your deposit. The property market is stagnating and capital growth has either stopped or reversed.

If you have a deposit available, with sensible investing, you could probably achieve 6-7% a year on this sum and, in some cases, do this tax free.

My advice would be to wait until the market has bottomed out and then buy.

Of course, if you are renting at the moment, rather than still staying with parents etc...then you may wish to get on the market and make the money you are paying out in rent every month count towards paying off the capital in your property.

It's a vastly complicated decision that will be unique to your circumstances and whether you are in the market to own your HOME, or whether you are in it to INVEST.

See an INDEPENDENT mortgage advisor for advice on the market at the moment...but make sure BEFORE you engage them that they are not tied to a suite of products. Don't just take the advice of an Estate Agent...remember that they are interested only in getting slow-moving properties off their books and earning the high levels of commission that they earn for doing so!

Paul Carcone
Carcone Consulting

[Jeddo]

I agree with PC. From what I've been picking up from sources I trust, the fall in values has only just begun. Nobody knows just how far and for how long the decline will go on, but the most sensible thing to do is to follow the same kind of advice that's handed out whenever the UK suffers a severe snowstorm: don't go out - or in this case, in - unless you have to.

Estate agents are the last people to listen to, poor souls. They have a living to make and need to try to convince themselves as well as potential customers that things are not as grim as the media would have us believe. The truth is that the situation is probably far worse than most people realise. Talk to the average homeowner about a potential decline of 50% over the coming years and they will think you are a doom monger. Yet some professional commentators see this as a very real possibility. Such falls from the peaks of an overinflated market are not unprecedented. In fact, add in the UK's current economic outlook, the soaring oil price and food shortages and some might say that 50% is on the low side.

[Tony]

Hi Jeddo,

Wow, 50% sounds high to me. I saw that the Halifax have a 10% savings account advertised. If you have the deposit I would put it in there for safe keeping.

Tony

[Jeddo]

Last week Money Week ran a report on how far prices could fall. 50% over 5 years was the highest prediction, made by an economist/stockbroker. The lowest was 25% over 2 years, made by an estate agent.

[Paul Carcone]

50% is just more scaremongering...a lot of the instability in the market is precipiated by a false-fear agenda pedalled by the media. There is just far too much demand in the UK for this sort of price plummet to materialise. Remember that we live on a small island with a lot of people on it.

Even if the house prices do plummet, the laws of macro-economics will mean that interest rates will go up and/or earnings down to such an extent that the houses will remain unaffordable for many!

10% is a relalistic figure for most segments in the market....50% will only ever happen in the luxury/discretionary segments.

[Jeddo]

Time will tell, of course. But I have to say that IMO any fear is far from false.

Prices need to fall significantly simply because they became overinflated due to irresponsible lending. A 10% drop is realistic... by the end of 2008. But even then, prices are still way too high and further falls are widely predicted by those who do not have a vested interest in talking up the market.

A little history of house price crashes is perhaps informative here:

UK 1973-1977 down 34%; 1990-1993 down 26%
Japan 1973-1977 down 31%; 1991-2007 down 44%
Switzerland 1972-1975 down 29%; 1990-2001 down 39%
Netherlands 1978-1986 down 50%
Norway 1987-1994 down 40%

There's more... including the current state of the USA property crash, but these are typical and almost every country has had to contend with major corrections in property values.

What these figures show is that not only are house price corrections often far more severe than many commentators expect, the duration of the downturn is far longer.

BTW, the data is from research recently published by Goldman Sachs.

[Jeddo]

Interesting to see that this thread was started in May and the question posed at the time even brought a 'Yes' response.

Now, no one would even bother to ask the question, let alone put their name to a suggestion that it was a good idea (though to be fair to James, he does warn that values are unlikely to rise over the next 5 years.)

It just shows how rapidly things can change. In the space of just 2 months all hell has broken loose in the housing market. Yet the signs were there for all to see a year or more ago.

Property prices had been rising inexorably across the globe, not only in the UK. Much of the rise was 'inexplicable' in sound economic terms - ie, excluding interest rates, income growth and demographics. An IMF report examined property price increases from 1997 to 2007 and on pure fundamentals and made adjustments for inflation.

Britain showed a 'gap' above real values of 28%; Ireland 32%. So, arguably until prices fall by this amount, property remains overvalued. This, of course, is aside from the downward pressure likely to be exerted by recessionary factors et al.

As is so often the case, most of us only see what was there all along after the event.

[GlasgowGirl]

It's certainly not the right time to sell anyway - I've been trying to sell my house for months with very little interest. But to play devil's advocate a little bit, couldn't it be argued that it is in fact a good time to buy, if you have a sufficient deposit and are able to stay in the home that you buy for several years, in the event that the market doesn't pick up? When I eventually sell my house, I think I'll be in quite a good position to buy: sellers are likely to accept a far lower price than they would have just a few months ago. Of course, there is still the problem that mortgages are getting more expensive, but aren't there still some affordable deals out there? I'd be interested in people's thoughts.