MONEY COMMENT
Property Prices And The Panic Option

By Jane Mack (TMFJane)
June 21, 2004

A few weeks ago I wrote an article linking house prices with crowd behaviour. The property pundits like to call it 'market sentiment' but I'm neither knowledgeable enough, nor posh enough, to use a phrase such as that. I prefer to think of it as 'acting like lemmings'.

Put it this way... if you, personally, are prepared to pay a certain price/mortgage for a home because you want it sufficiently and because it's right for you - and you can afford it - then that is the price you will pay for it. When you, personally, decide that you are not prepared to pay the price/mortgage, or you can't afford it, then you won't. In theory, it's as simple as that.

Except it isn't because psychological and emotional factors start creeping into the equation. It's very difficult to think independently when everyone else has an opinion about the subject. And, when a considerable number of people start shouting at you about which way you should be thinking, it's very easy to get confused.

For example, you've got your First Time Buyers (FTBs) who bemoan the fact that prices keep going up so fast that they can barely keep up with saving for the necessary deposit. Understandably, they feel resentful that, in spite of their struggle to save, they still can't quite make that first jump on to the housing ladder. In fact, they keep saying that they're looking forward to an Eighties-style property crash because it will, hopefully, mean they'll, at least, have a fighting chance to be able to afford their own home. (You can understand how they feel).

You've also got the Buy-To-Let brigade (BTLs) who've bought 'extra' houses, over and above their own family homes, in order to rent them out to gain an income. They've long since realised that paying into a pension doesn't always pay off and that Gordon Brown, sure as hell, ain't going to look after them in their old age - so, in their view, they've got to do something if they don't want to be subsisting on pension credits when they finally retire. (You can understand how they feel too).

And then you've got the Sell-To-Rent folk (STRs); the people who bought a while ago and, therefore have some equity in their homes. They think the market is probably going to crash and they'd like to cash in while the going is good. They, too, would like property prices to crash because, that way, they'll make some money out of timing the market and will, in theory, be able to buy a much better house for the same price as they sold their old one. (You can understand their thinking as well).

Finally, there are the so-called Smugs (SMGs), who, depending on where you're coming from, are either people who landed on their feet at the right time and are now crowing from the sidelines, or who are people who only managed to get on the property ladder by scrimping and saving and making do with sitting on orange crates before gratefully accepting a battered old sofa from Aunt Mavis.

(Thanks, Aunt Mavis!)

In my view, if everyone decides to panic because they're all listening to everyone else (and, possibly, getting it wrong!), it'll all end in tears. So, take a deep breath. And calm down... 

Regardless of which camp you're in, you can only really make a decision based on your own particular circumstances. Rent, if it's right for you. Buy, if it's right for you. Just think about what's right for you. And don't panic.