BUY NOW LAUGH LATER

Indications are that house prices are falling or at least softening in many parts of the country and now is a great time to buy a property. But is it really a great time to buy and what if you get it wrong?

According to many property experts, a good time to buy a residential property – whether as a home or as a buy to let – is when prices are falling.

The best time to buy is when prices have reached their floor and are set to go up again.

Those are the occasions you can negotiate hard, secure property bargains and benefit later as prices inevitably climb again to new highs.

The theory is impeccable. The execution is the tricky bit.

As a strategy this can be called the “buy now laugh later strategy”.

Two approaches

If the strategy appeals to you, there are two approaches you can take as to when to buy:

  • Buy when prices have reached the very bottom
  • Buy when prices have fallen by a pre-set percentage from their previous high.

The first approach is an attempt to time the market and is always exceptionally difficult and usually unattainable. However, if you can pull it off you will maximise gains or growth when prices pick up again.

The second approach is preferable it is easier to operate, more practical. You should set “a buy point” – a point where prices have fallen a “substantial” percentage from a previous high.

You can decide what you consider to be “substantial” but 10-25% certainty seems to fall into that category based on historical data.

If you set the figure too high, there is a danger that prices will not fall that much and you will end up buying later than you should.

However, if you set the figure too low you will miss out on growth if you effectively buy too soon – before prices have fallen fully.

Clearly a mid-point between your high and low would be a sensible compromise.


BUYING IN DIFFERENT SITUATIONS
Buying a UK property (must know steps when buying in the UK)
Buying a property abroad (the issues, risks and dangers to be aware of)
Buying property at an auction (the ins and outs of auction purchases)

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Several property markets

Another important consideration is to remember that there is not one property market but many.

All parts of the country do not perform the same way at all times.

At the moment, prices are falling very slightly on an annual basis in:

  • London
  • South East
  • North East.

However, in the rest of the country prices are rising by a few percentage points.

Some areas like Scotland and Northern Ireland are doing better than most.

Even in an area experiencing falls, there will be differentials. For instance, prices have fallen by around 15% in some central London boroughs in the last two or three years, but in some other London boroughs prices have increased modestly. 

Therefore, in deciding when prices are falling you cannot simply rely on national or even regional statistics.

You need to dig deeper into the data looking at specific cities, towns, boroughs, villages and areas.

You are likely to fare even better if you incur the time and effort to analyse statistics on a postcode or even a street basis.

In a few parts of the country, notably places like central London and Aberdeen, prices have fallen substantially from their previous peak and now may be “a buy opportunity” depending on your buy criteria.

In most parts of the country however prices are still on the rise and now is not a time to buy if you wish to benefit from falling prices.

You need to sit tight and perhaps use the time to work out how to raise a quick house deposit


STEPS INVOLVED IN BUYING
My first property (basic stuff first time buyers must know)
Property buyer newbie (the main steps when buying a property)
Buying a flat – what to consider (key things to consider when buying a flat)

 

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18 Year Property Cycle

In deciding where to set your “buy point” one thing worth considering is the 18 Year Property Cycle.

The conventional portrayal of the cycle suggests a property crash occurs every 18 years or so on average.

The last crash was in 2008 and so another crash is not due for another 8 years or so.

In the middle of the cycle there is a “mid-cycle wobble” where prices fall by a few percentage points, but not greatly, and then pick up aggressively before crashing.

We are at the mid cycle wobble point now.

The 18 Year Property Cycle suggests prices are unlikely to fall substantially (10-25%) until the crash, which is many years off.

If you accept this analysis of the cycle, the price falls occurring now are likely to be modest and if you are waiting for huge price falls before buying, you are likely to be waiting for many years.

One conclusion you may reach is that it is best to wait until the crash before buying. But that carries risks, most notably:

  • Prices may be beyond your reach at that point, even after the crash
  • Your employment status and ability to secure the mortgage you need may change for the worse due to changes in your personal circumstances
  • Mortgages may be more difficult to obtain after a crash.

The best time to buy always depends on your individual circumstances. Normally you should look to buy when you can comfortably afford to do so.

However, if you are looking to buy in a falling market – taking advantage of the potential benefits – the next couple of years are likely to present you with opportunities in some parts of the country, especially the South.

By buying in a falling market you know that you are not buying at the peak of the market – and even if prices do crash later you will not be the worst affected.

Have you ever bought in a falling market and benefited? Please leave your comments below.

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Dalton Barrett
Rebel Property Coach

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My website is: www.rebelpropertycoach.com

 

 


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