The Time To Buy Property Is Now

As a fully fledged Grumpy Old Fool, I'm not as optimistic as Neil and the other youngsters at Fool HQ. I think we're heading in this direction:
http://www.fool.co.uk/news/your-money/2007/12/21/were-all-living-on-fantasy-island.aspx

In other words, there's plenty more doom and gloom to come!

Cliff (Fool freelancer)

Yes, prices may well continue down and you get a cheaper property. But they might also go up, taking owning a home out of your reach. You can afford it now, and all the other conditions fit, so why risk it?

relative to earnings prices have only been higher in one other year since the war, and that was 2007.

To return to the historical p/e of ~3.5 prices need to fall ~40% in real terms. To return to 2007 levels banks need to suddenly get hold of 10s of billions of pounds and collectively lend this with lax lending practices to get back to last years euphoria. I cannot think of a single bank that given a free billion pounds would now want to use that to lend to any fool wanting to buy a house, sure they'll lend if you put down a 10% deposit, but who has 20k knocking about ready to spend.

Buying now could very easily be financial suicide. The markets might pick up, but they have a very long proven habit of carrying on going in their current trend long after the fundamentals suggest otherwise. At the moment the fundamentals say houses are much too high and the tend is downwards.

Do you really want to bet against both fundamental analysis and technical analysis at the same time?

The average house is now falling at a rate that is more than the average person takes home in the same time, patience is now the name of the game, and what is more most people who might want to buy have worked that out as well.

And if you want a prediction: the markets are starting to price in a interest rate INCREASE at some point in the medium term future, that really isn't a recipe for rising prices.

832

Sorry Neil but you are bordering on madness. I've waited years for this greed-bubble to burst and I'm not buying now when prices are still so near their peak. There is a long way to go yet before average property prices to average wages ratio is anywhere near normality which it will do for many reasons including banks cashflow problems, high interest rates, growing cost-of-living, more repossessions hitting the market as months go by, homebuyers being more savvy/wary, low market confidence and almost every greedy property-buyer has already done their buying.

Like I and others have said before on these pages: You had your boom, now let me have my bust. BUST HARD AND BUST LONG!!!!

The old chestnut about it not mattering if you intend to stay in the property for years is nonsense. The bottom line is ... the market is CLEARLY in a bust, it is not a matter of speculation!

Ultimately, why would you pay way more for something than you have to? You wouldn't do that for any other goods or service you might be considering purchasing - let alone a major investment that you will be paying off with great difficulty over many years of your life.

Your argument therefore makes no sense - and in fact it is your kind of 'logic' being believed by the masses that has helped keep an artificially over-inflated housing market so high for so long!

Could I still afford it if interest rates went up a couple of points over the next few months or years?

I would just make a fairly small but potentially important observation. In Australia a few years ago you could pick up a mortgage for around 4.5% or less. Now after interest rate rises and credit crunch you will struggle to find a mortgage for 8%. Meaning mortgage interest costs have nearly doubled in a few short years. As most property buyers enter a 25 year mortgage they/we must take a long term view. Interest rates may double/triple from today's low base level.

Neil
You are seriously foolish (no capital letter F there). Having been through 2 house price slumps I sold my London flat in 2006, my share portfolio in 2007. Cash at the moment is king. I will consider buying property again, not when I can afford it, but when I judge the prices have no further to fall. Maybe 2010.

For once it's nice to read an positive article on house prices. I've had enough reading about doom and gloom. It will be interesting to see how many of you doom-mongers will find a property bargain in the few years. Not many is my prediction. People were lucky who bought in the mid 90's during the last trough, not because they had the market timing right. I guess the same will happen now. There are too many people waiting on the sidelines who want to buy and this will ensure house values don't drop significantly.

In defense of one of the articles points: The only time to really buy, is when you can afford to, given that things with yourself or the market may go bad or worse. I personally would like to know that I can easily afford it, not jsut if rates go up by a couple of percent, but by more, and i want to have a larger deposit. So until all these things match up, i.e. I and my other half can afford to buy a house in roughly the right area, we'll keep on renting our cheap flat and saving. Still, on top of my affordability, even if i could buy now, i wouldn't. I'll carry on investing the cash for another year yet i expect. My aim is to be in a good secure position, personally. This isnt always the same thing as buying at the right time with respect to the market. If it keeps on coming down however, it helps a lot. If it doesn't, i don't see it accelerating past my savings for the next year.

I have little or no sympathy with people who "invest" in property. Real people have their HOMES at risk because of greedy financiers and incompetent government. That said, in this market the investors had only a small impact on the direction. They just got fat at other people's expense. In that sense though, property is no different to any other market; there will always be winners and losers. It's just that in this market, many of the losers will not be "investing" but just trying to provide for their families.

The forecasters have been predicting a slow down for ages because any fool could see that unaffordable housing was no way to go, particularly for this country where HOME ownership is so high. It's sobering that even seasoned forecasters could not predict just how far the greed would go or how long the government would allow it to continue to support their "buoyant economy". In some ways you could even say the sub-prime disaster was a blessing. The banks didn't stop over lending because they suddenly thought of the consequences of their actions; without sub-prime we'd probably be looking at 6 or 7x lending and houses inflated 20% more.

Had the government stepped in 5 years ago to limit lending to say 3.5x, then the economy could well have cooled. Fortunately they didn't and Tony Blair got his historic third term. A few thousand people (even hundreds of thousands) losing their homes and maybe even their jobs is a small price to pay to keep a labour government a little longer I'm sure most bankers would agree.

Getting to the spirit of the article. I don't care whether or not it's a good time to "invest" in "property". For those needing to change home then the rules haven't changed and are actually quite well articulated here. Look at the long term; consider the life value of the purchase. If your housing needs are changing rapidly then now cannot be a good time to buy because things could get worse in the short term, and if you will need to move again soon then you could lose your shirt or get tied in for years to come.

Good luck to real people trying to buy a home. I pray that the powers-that-be learn something from the mistakes and housing is never allowed to rise above 3.5x normal earnings if and when normality is once again established.

I find peoples' obsession with house prices very amusing. The big news today seems to be that people who took out 100% mortgages in the last year are likely to be in negative equity now - incredible! House prices are falling and those without equity in their house will now be in negative equity. The average person know's little about finance and spends too more time listening to whatever news source comes their way. I bought my 1st house as soon as I started work in '96, moved to a more expensive one in late '98 when price falls were predicted, and moved again last year to a house worth 12 x my income, but only borrowing 2 x my income, where I imagine I'll be happy to stay for the rest of my life. Base your financial decisions on what you want but if you do what the average person does you'll get what the average person gets which ain't that great. BTW, whilst buying, and staying, in a house I owned was what I wanted to do there's nothing wrong with renting when its appropriate. I wouldn't expect anyone to switch from renting to buying when there's no real point to but neither would I expect anyone to sell up just because house prices are falling. That's a gamble with more money than makes sense to me.

The choice is easy, either i buy now and take on a mortgae of £100K or wait a further 6 months and have the 'possibility' of buying a similar or even the same property with a mortgage of let us say £75K.
Difference of £25K, but the actual cost of that debt over its lifetime is how much say £75K?? worth taking a risk on property prices continuing to fall.

In terms of where the property market is heading it is quite easy to do you own research, asking prices are heavily down in my area, but chancers still are looking to sell BTL house on gross yields of 4.5%. To get those yields into sensible territory then capital values have a long way to go!

Chas

I can understand what is being said well enough, but there are some major factors being ignored in all this. Surely if there is a recession, then job security is the key factor in any commitment to lay out a fortune in cash. If that is not a problem and you know you can afford the highest interest rates that have occurred in the past, then yes, why not buy now. So taking into account the rise in interest rates, fuel prices and the knock on effect from all the price increases, then there would have to be a hefty amount of float cash in your salary after buying the house. This is something that the majority of people in the UK just would not have.

crikey! doooom mongerers or what!? you guys are worse than the fabricated news stories about one bank predicting a 1.0000016% fall whilst another predicts rises!! Yes we have a high p/e ratio, yes the credit crunch blah blah blah BUT remember unemployment is low, earnings will rise within next few years, economy is good and soon as prices dip, first time buyers arrive and bolster the market. also Areas like Scotland and other parts of England are still reporting rises in prices NOT AN ACCELERATED CRASH, AH HELP! We'RE ALL GOING TO DIE. nah not me. i just bought a new property at a huge cost but is worth it for me, in nice location, and even ifi do lose 50%, so what? Its only a loss if i sell it.

I shall be cancelling my email subscription to the Fool as a result of this disgraceful rubbish. Completely irresponsible journalism. Anyone following this ridiculous advice risks spending the next ten years in financial and domestic hell.

What if interest rates rise more than a few points (as could well happen, given the current rate of inflation)? What if you lose your job, get divorced or are widowed? What if you suddenly find yourself with unexpected children on the way? What if the neighbours are utter nightmares?

Shame on you for recommending that your readers leverage themselves to the hilt to shackle themselves to an overvalued asset that is rapidly falling in price.

My point of view is the property prices been going up for over 10years ,and like everything have to go down to.
I still think i rather own a property them rent at least its yours.
Has a property owner for the last 6 years which i moved every year i would recomend to buy.
The stats most of the times are wrong and who makes people think that things are much worst them actually they are is the media.
And is what you rather do waist average £600/700p/m in rent or put it towards your own property.
I know what i will do.BUY IT...
I still dont know why people complaint so much having coming portugal where property prices are average 20times the anual average wage ours 7 or 8 times seems just wonderfull.

Good God, I never comment on these but had to today. I bought my first flat back in 2000, I had no deposit and debts of a few grand, I took out a Northern rock + mortgage and paid off this and saw my flat more then double in 5 years (ok, I was lucky but as it was my home, If I could afford the payments then why not?) My second place I bought two years ago and that had gone up 70 grand when I had it valued last October. I know prices have fallen but most is the media and everyone believing the worse. In life you got to be positive and take a certain gamble otherwise you will be waiting forever before upgrading/getting on the property ladder (like many of my friends that are now in their early thirties) Peronally, If I was a first time buyer I would hold on a bit longer and see what happens with prices and interest rates, but I think now is a good time to upgrade. I am actually thinking of upgrading to a modest 2 bed cottage that last year I would of had to have taken on a extra 40k mortgage. People seem to have been lapping it up when prices were rising and now things are panning out getting in a tizz.
Go by your instincts, if you are comfortable with the payments and the sums add up then I dont see a problem, as far as a recesssion, well if it happens it happens and there will be thousands in the same boat. I dont worry too much about these things but would take on several jobs or rent out my flat and flatshare just to pay the mortgage if the worse was to happen :-)

Hmm... interesting article and comments. As someone who owns a property outright and has recently signed an agreement for a new property (ready in about March 09), I'm unsure whether to sell up to fund the new buy or to rent out to service (partially) a mortgage. Having been mortgage free for a number of years, I'm reluctant to have that particular mill-stone placed around my neck again, but may have to. My gut feeling is that prices will take a downturn for a year or two, and then recover. I can't help comparing this current climate with the late 80s (when I bought my first house). Painful at the time, but worth it in the long run with substantial gains having been made since then. If the answer to all Neil's questions are 'yes' - and in my case they are, then I'm going to take a chance again.

This is just a thought but, having read the original article and some of the responses, one word I've only seen once, so far, is 'home'. Most of the comments I've come across, not just on this site, but in the media generally, seem to treat property as an investment. For most people, however, who can only afford to have one property at a time, surely its most important role is not as an investment, but as a place to live, to eat, sleep and generally call 'home'. In that sense, at least, the price of property is a secondary consideration, though the cost of the mortgage re=payments may not be!

Totally agree with linlin06,legnum.
People been waiting forever and complaining about prices rises(first time buyers),well now they are not rising anymore.
But looks like now they are waiting to see if there is further drops keep waiting and buy the time you realise you will be 40/50 years old and perhaps to old to take 25 years mortgage.
We need the first time buyer to keep the market going.

Having scan read the article and peoples comments I felt inclined to register and make my first post.

An opinion is an opinion and everyone is entitled to it. There is more to a home than whether you make money on it or not. I remember when we had and still do had a growing family. We needed more space we were caught in negative equity but sold for nearly half what we had bought for. Rolled the loss up into a new larger property.

After two more moves w now have in excess of £100k equity SO WHAT. It is the people that makes a home and as long as i can afford to live there and enjoy life that is good.

Appreciated as investors you may say we should wait. First time buyers if they can wait maybe should. However given a choice between living with in laws or waiting i think i would buy.

Any person who reads an article and acts on it with out reflection or consideration needs shooting, as to some of the opinionated fools here, self probably included.

One day i will live in a fully paid house and it will be worth whatever someone is willing to pay for it at that time irrespective of what i bought it for. So maybe buying later means you will have a few more pennies each month by way of lower repayments.

BUT COME ON lets live for now, take hold of life do something for the forst time today..........alternatively wait for things to get a bit more gloomy.

please be aware this is my opinion and not intended as a lifestyle model.

Noisi - if anyone makes a decision based on one article they deserve what they get! They should at least read Cliff's stuff as well but this article gives another opinion and it's one that is worth hearing.

A house is worth what it is worth now - people are still buying and selling, if people weren't buying then prices will fall until they do; basic economics init?!

I think the article is spot on. If you can afford to buy now, then you would be wise to do so. The reason being, you will be able to pick up a quality property without fear of being guzumped, with all the hassle and expense that goes with that. Once you are in the property, you put your mark on it, get it as you want and enjoy it. Forget what the value is. With a repayment mortgage you are chipping away at the debt, and in 3 to 4 years time you will be quids in, even if prices dip a bit more after your purchase, they will come back up especially with inflation taking of. Trying to buy a house in a rising market is a nightmare and almost impossible to get the property you really want, because there is more demand than supply, i.e you have everyone and his dog fighting over the good property's. So as this article say's buy now if you can afford the property you want as a long term home. Got to be better than renting, at the mercy of your Landlord!

I feel I am caught betweeen the devil and the deep blue sea. I have a house that was left to me by my mother when she died 18 months ago, detached and with glorious sea views. We decided to renovate as she had done no work on it for many years. I've had it on the market close to 1 year now and would love to sell and have reduced the price. I am now in the position of do I rent it or do I hang on and see if I can sell. I really don't know what to do for the best. Nothing for me is clear cut, do the media make things worse by harping on about prices, are we all being dumbed down so ultimately we believe everything we hear on the news or in the press. I am not so stupid not to realise that things are not good at the moment, but what is the way forward. Where do we all go from here.

in a falling market renting rather than buying makes foolish sense.

Instead of paying my £600 amonth in interest payments to the bank, i am paying £600 to my landlord, he pays to maintain and insure the property and equip it with white goods. so that is another £100 a month saved. Given that properties in my price bracket are losing 10% a year in capital value then that is another £25K saved, plus my savings pay most of the rent anyway. Perfect foolishness, yes I would like to own my 'own' home, but I can forgo that for sometime yet until values have settled down. This should result in future mortgage payments being less.

Chas

Outrageous headline - got my attention.
Should have clarified - buy to live in it - yes go shopping, there are lots of houses to choose from, what you "lose" on the one you sell, you will "gain" on the one you buy, although it will be slower to sell than usual.
Buy to rent it out - different story - do some maths and see if it stacks up - i.e. will the rent cover your expenses and make a profit - I doubt it, and with capital losses to come, not much point right now.