Buying in a falling market

Joseph Kuhr

Save yourself a headache and don't bother reading this thread. The Acommodation and Property troll brigade have struck again. You'll find nothing discussed here other than the usual egotistical drivel spouted by people with alterior motives, some of which have been exposed - they've never even bought property before.

In fact, I can save you a whole lot of trouble. You needn't bother reading any of the threads on here, let me sum up boards.ie Accommodation and Property for you in one paragraph:

"anyone who buys a house now is a complete moron because prices need to drop so that I can continue with my self indulgent lifestyle and buy a 3 bedroom semi-d slap bang beside the city centre without having to get up off my lazy arse and work for it"


For those of you looking for proper advice other than "don't buy", have a look at this and this.

Some good advice on how to get the best deal in a falling market and why for some now could be the time to buy.

SimpleSam06

Good reasons not to buy now include, a bit of patience will save you six figures over the lifetime of a mortgage.

Thats a lot of holidays. Or a serious luxury vehicle. Or a handy little college fund for the kids. Why work so hard to make the banks richer? Life is short enough as it is.

jetski

six figure’s is certainly sceptical

does anyone know if americas property market is on the way down still?

Joseph Kuhr

From the link:

• If you are a seller who wants to move up to a more expensive home in a down market, now could be the best time. The longer you wait to sell, the lower the price of your home could fall.
• If you can arrange for alternate housing, a smart strategy is sell now, wait a few months, then buy your new home.
• If you sell and buy simultaneously, you'll still be ahead of the game because the price reduction on the purchase is greater than the loss on the sale.

Joseph Kuhr

jetski wrote: »

six figure’s is certainly sceptical

does anyone know if americas property market is on the way down still?

Yes they're still declining. Not sure how reliable the Turkish Daily news is but its the most up to date info I can see on google.

SimpleSam06

jetski wrote: »

six figure’s is certainly sceptical

Hardly, if you can get a €35k drop in price you've got your six figures saved over the lifetime of the mortgage. Most places, you can get that much of a discount just by asking for it. And if you can get that just by asking, you'd better believe you can get a lot more of a drop with a little patience.

Even better, every euro you eventually save for your deposit, saves you two euros in interest payments, so while prices drop your long term burden reduces as well.

jetski

I tought the general rule was for every 2 euro you borrow you pay back an extra 1 ?

tibor

Depends on interest rates and length of the loan, innit.
Borrow 2euro at 5% over 30 years, pay back 3.86.

http://www.jeacle.ie/mortgage/

SimpleSam06

jetski wrote: »

I tought the general rule was for every 2 euro you borrow you pay back an extra 1 ?

€400,000 over 30 years, you end up repaying €770,000 at 5%
€300,000 over 30 years, you end up repaying €580,000 at 5%
€250,000 over 30 years, you end up repaying €480,000 at 5%

So you can see how drops can affect the total amount repaid.

gurramok

Joseph Kuhr wrote: »

From the link:

You forgot to mention less stamp duty is paid on the house you chase in a declining market hence the longer you wait until the bottom is reached, you save thousands in that tax alone.

astrofool

It can also be good to buy in a falling market if the market starts heading up again, the chances of catching a market at the inflection point are relatively low, and there is a danger when the market starts going up, that you'll pay a lot more than you would have, then by buying in a falling market (depending on the speed of the turn around).

We don't appear to be at or near that inflection point for property yet, but remember that what everybody is saying here is an opinion, and it'll be up to each person to make their own decision, based on their finances, and needs in life.

Joseph Kuhr

astrofool wrote: »

It can also be good to buy in a falling market if the market starts heading up again, the chances of catching a market at the inflection point are relatively low, and there is a danger when the market starts going up, that you'll pay a lot more than you would have, then by buying in a falling market (depending on the speed of the turn around).

We don't appear to be at or near that inflection point for property yet, but remember that what everybody is saying here is an opinion, and it'll be up to each person to make their own decision, based on their finances, and needs in life.

This is an excellent point. The advice to wait until prices drop further is the exact same as what was being said to sellers in the boom, except turned on its head. It was bad advice to the sellers selling close to the peak, as is telling buyers to hold off close to the trough. As you say, nobody knows when the infection point is. For some people the best advice may well be to hold off. For the vast majority (i.e non FTBs) its not so straight forward and there is a lot to consider. I think the adivce given in the links can help people to think outside the box.

gurramok wrote:

You forgot to mention less stamp duty is paid on the house you chase in a declining market hence the longer you wait until the bottom is reached, you save thousands in that tax alone.

Yes stamp duty obviously needs to be included in the equation and that is not mentioned in the article (prob because it is American).

The argument of waiting until the bottom is reached is slightly misleading. What you are really saying is wating until prices start to increase again, as you will not know that the bottom has been reached until then. At this point you will not benefit from the advantages of a buyers market.

Another thing not mentioned in the articles is the current tightening of lending criteria. There's an argument that tighter lending will lead to lower prices. In reality a lot of people will simply be squeezed out of the market. If lending is tightened any further you could find you no longer qualify for a mortgage or needing a higher deposit (95% mortgage Vs 85% mortgage). Its all down to hindsight I suppose, but if you were to find yourself squeezed out of the market then now would be the best time to buy.

SimpleSam06

Joseph Kuhr wrote: »

It was bad advice to the sellers selling close to the peak, as is telling buyers to hold off close to the trough. As you say, nobody knows when the infection point is.

In the absence of other information, however, why would anyone take a gamble with tens or hundreds of thousands of euros? Whats the worst that can happen, another property boom?

Not only is that extremely unlikely, but even if that were to come to pass, anyone buying then would only be in the same position as buyers were in 2000 or 2001 - a pretty good one.

What will probably happen however is that property will bottom out at a reasonable enough value level, then stay in and around that for decades to come, meaning people will still have plenty of time to decide when to buy. The boom was a very unusual set of circumstances coming together.

Joseph Kuhr wrote: »

The argument of waiting until the bottom is reached is slightly misleading.

Its only misleading if you haven't considered the aftermath of the crash. Your "benefits of a buyers market" still mean gambling enormous sums of money that you might otherwise have held on to.

Joseph Kuhr wrote: »

If lending is tightened any further you could find you no longer qualify for a mortgage or needing a higher deposit (95% mortgage Vs 85% mortgage). Its all down to hindsight I suppose, but if you were to find yourself squeezed out of the market then now would be the best time to buy.

Heh, it doesn't work like it did on the way up. If a lot of people are being squeezed by tighter conditions, prices drop to meet them. You don't get "squeezed out of the market".

Joseph Kuhr

SimpleSam06 wrote: »

Its only misleading if you haven't considered the aftermath of the crash. Your "benefits of a buyers market" still mean gambling enormous sums of money that you might otherwise have held on to.

Can you be more specific. Which points in the articles would be considered gambling enormous amounts of money?

johnnyskeleton

If you use this simple calculator (obviously removing property tax and treating $ as €) you will see that in the Irish market, even if property is falling by 1% per annum it never makes sense to buy.

It also shows some interesting calculations. For example, if rents and house prices are static (i.e. 0% increase) it only makes sense to buy instead of rent when prices are approximately 13 times annual rent. At present, they are more like 30 times annual rent.

When house prices are going up by 4% or more each year, it nearly always makes sense to buy over rent. When they are dropping by 4% or more each year, it nearly always makes sense to rent over buy.

The link the OP has provided is too simplistic and it takes no account of reality generally or the specific reality of the Irish market. It's also quite a lot of reading, so if you want more specific reasons as to why you shouldn't buy in a downturn post a specific argument using current market prices.

Joseph Kuhr

johnnyskeleton wrote: »

If you use this simple calculator (obviously removing property tax and treating $ as €) you will see that in the Irish market, even if property is falling by 1% per annum it never makes sense to buy.

That makes no sense whatsoever. If it never makes sense to buy in a falling market then what turns the market turn around? If that were true the housing market would be like the 2nd hand car market.

johnnyskeleton wrote: »

so if you want more specific reasons as to why you shouldn't buy in a downturn post a specific argument using current market prices.

I'm not asking for reasons why you shouldn't buy, I'm giving an alternative point of view other than don't buy. If you want simplistic I think you'll find thousands of pages of it with people arguing the same point over and over which can be summed up in the simple words "don't buy when prices are declining". Clearly this is not the case for everyone.

Apologies for the length of the articles. But it does outline the complexity of the situation, something seriously lacking on boards.ie.

Firetrap

That makes no sense whatsoever. If it never makes sense to buy in a falling market then what turns the market turn around? If that were true the housing market would be like the 2nd hand car market.

Sentiment and access to easy credit?

johnnyskeleton

Joseph Kuhr wrote: »

That makes no sense whatsoever. If it never makes sense to buy in a falling market then what turns the market turn around? If that were true the housing market would be like the 2nd hand car market.

I said in the Irish market. If, to take an extreme example, annual rent was €12k on a property and buying it at an interest rate of 5% for €48k was the alternative, you would be mad to rent. But for the last few years, the only reason to buy as opposed to rent was because property appeared to be constantly going up. That that out of the equation, moreover, take the exact opposite type of scenario where house prices are dropping, and there is absolutely no financial reason to buy as opposed to renting, because it doesn't make finanacial sense.

The market turns when, for example (and as I said above) when the purchase price comes to approx 13x annual rent, it then would make sense to buy over rent in a declining market, but if you can bring up a scenario, using that calculator or otherwise, where it would make financial sense to buy in the Irish market when it is falling, then we can discuss that. However, it is practically unheard of in reality that it would make sense to buy in a declining market. What the article you posted advocates is that it makes sense if there is a short term dip but then it goes back to property price increases, which generally does not happen.

Joseph Kuhr wrote: »

I'm not asking for reasons why you shouldn't buy, I'm giving an alternative point of view other than don't buy. If you want simplistic I think you'll find thousands of pages of it with people arguing the same point over and over which can be summed up in the simple words "don't buy when prices are declining". Clearly this is not the case for everyone.

Apologies for the length of the articles. But it does outline the complexity of the situation, something seriously lacking on boards.ie.

I think that is unfair, you will find lots of well illustrated arguments as to why you shouldn't buy when prices are declining or that you shouldn't buy in the current market, but the arguments in the link you posted are simple in the extreme. For example, it says that if you are a trader upper and the market drops by 10% you will gain, because although you lose 10% of your house worth €200k (i.e. €20k loss) the house you wanted to buy for €1m is now worth (€900k), thus giving you a profit of €80k. Apart from the practical problems with this scenario, it also ignores that if the house you trade up to continues to drop in value you will over time lose more than you will on your smaller property (for the same reason).

Even if you don't want to give an example, at least select the part of the article you wish to discuss and quote it here - as it stands there are way too many points to argue against.

SimpleSam06

Joseph Kuhr wrote: »

Can you be more specific. Which points in the articles would be considered gambling enormous amounts of money?

If you wouldn't mind reading my post again there, you will see I was responding to points you have raised, not to the vacuous fluff piece you managed to dig out of the internet.

Joseph Kuhr wrote: »

That makes no sense whatsoever. If it never makes sense to buy in a falling market then what turns the market turn around?

As cost approaches value once again, financial lenders become more capable of lending, since their loan to you is more accurately covered by the value of the house, thus there is less risk. What this means is that people will eventually start buying again, of course, but by gradual degrees, and it is highly unlikely that there will be any serious growth for the foreseeable future, keeping out investors.

As Johnny pointed out, it starts to make sense when cost is around 12 or 13 times rent. This synchs rather well with a concept recently put forward by several posters in this forum, the "rule of 12", which says pretty much the same thing. If you think about it, rent is directly controlled by supply and demand, so the relationship between house prices and rental rates, while not interdependent, do give a good indicator as to the realities of the situation.

Joseph Kuhr wrote: »

Apologies for the length of the articles. But it does outline the complexity of the situation, something seriously lacking on boards.ie.

And you're here to shine the light of reality on it for us, are you? I think I might be more inclined to take that statement seriously had you been present for the three other major threads about property, even before accom/property, almost as big as the housing bubble one, over the last several years.

gurramok

Joseph Kuhr wrote: »

That makes no sense whatsoever. If it never makes sense to buy in a falling market then what turns the market turn around? If that were true the housing market would be like the 2nd hand car market.

As Firetrap exclaimed, affordability is the key.

When that returns for the majority, we will see masses of people coming back to buy a house to live in, not a gold rush style, but in a normal stable buying environment, thats when you have the bottom.

We are miles away from that scenario yet.

Joseph Kuhr

johnnyskeleton wrote: »

For example, it says that if you are a trader upper and the market drops by 10% you will gain, because although you lose 10% of your house worth €200k (i.e. €20k loss) the house you wanted to buy for €1m is now worth (€900k), thus giving you a profit of €80k. Apart from the practical problems with this scenario, it also ignores that if the house you trade up to continues to drop in value you will over time lose more than you will on your smaller property (for the same reason).

You've hit the nail on the head there. Some people continue to think of home buying as an investment, even in a declining market (). You're still fuelled by the greed of the Cletic Tiger. The fact is, and this is very simple for those with an ounce of sense, at the point of purchase you lose nothing. Even if the value of the house continues to decline you still lose nothing. If your move is temporary then yes you will need to consider your points above. For everyone else its meaningless. Can you seriously not see that?

I posted those articles because they have some nice bits of advice for those who are moving in the current climate. I particularly like the advice on how to get up-to-date and accurate information out of the agencies.

I'm not trying to reignite the same old argument thats been done to death on boards, so please keep it for the other threads.

Joseph Kuhr

SimpleSam06 wrote: »

And you're here to shine the light of reality on it for us, are you? I think I might be more inclined to take that statement seriously had you been present for the three other major threads about property, even before accom/property, almost as big as the housing bubble one, over the last several years.

LOL classic . you've more posts than me therefore your opinion supercedes mine. I've been around here a long time SimpleSam06 under various guises and yes I've been on here dicussing things even before the crash....not that it matters.

Have you ever even bought a home simplesam06? Be truthful now remember we can all see your posts history.

gurramok

Is that you Morningstar?

If so or not so, show us your contributions to previous discussions on the subject.

Joseph Kuhr

gurramok wrote: »

Is that you Morningstar?

If so or not so, show us your contributions to previous discussions on the subject.

I've got nothing to prove gurramok. Like I said, this post count snobbery is a bit pathetic.

Boggle

@ Joseph Kuhr: While the turning price could come at any stage, playing the market is no longer an amateur sport. The real pro's will find gem's in any market and make money but the day of the amateur specuvestor is over for a while.

In reality a lot of people will simply be squeezed out of the market.

Exactly. An oversupplied housing supply, now complete with a smaller market implies a lot further to fall. Once affordability comes back into play, or more people have access to sufficient finance, this market is going down. And that is not the mention the specuvestor's who are no longer buying - what was it, 40% or something of purchases were investment properties??

Personally, I see the typical demand for properties sitting around the 35-40k per annum mark so it will take a year or more to wipe off this excess supply. (I'm deliberately ignoring the shoeboxes in the middle of nowhere which I fear may never sell.
Worse again, supply may increase rapidly at some stage when alll those 10 year IO mortgages run out and the specuvestor cannot cover the capital cost of the mortgage...

Although anyone looking to buy a home should do so. Get real with finances though and ignore the fantasy prices placed on it by amateur hour auctioneers and offer what you can afford and are willing to pay. Sooner or later you'll catch someone desperate enough to shift property that he'll take the hit.

martian1980

Joseph Kuhr wrote: »

You've hit the nail on the head there. Some people continue to think of home buying as an investment, even in a declining market (). You're still fuelled by the greed of the Cletic Tiger. The fact is, and this is very simple for those with an ounce of sense, at the point of purchase you lose nothing. Even if the value of the house continues to decline you still lose nothing. If your move is temporary then yes you will need to consider your points above. For everyone else its meaningless. Can you seriously not see that?

But if I buy now and need a 35 year mortgage to afford it, whereas in six months to a year I can afford it on a 30 year mortgage, I'd find it hard to tell myself that I lost nothing by buying now

Joseph Kuhr

martian1980 wrote: »

But if I buy now and need a 35 year mortgage to afford it, whereas in six months to a year I can afford it on a 30 year mortgage, I'd find it hard to tell myself that I lost nothing by buying now

Thats an unlikely situation to be in for the case of someone upgrading (remember the value of the home you are selling is also going down). Although not for all. You need to assess the situation as its going to be different for everyone.

martian1980 wrote: »

While the turning price could come at any stage, playing the market is no longer an amateur sport. The real pro's will find gem's in any market and make money but the day of the amateur specuvestor is over for a while

As a buyer in a buyers market, playing the market is the only way you should do it. I agree if you are incapable of playing the market then you should stay out as you are going to get stung by the opposing half.
btw, I'm not talking about making money. I think that boat has left. Clearly there's a lot of stragglers left behind still talking about maximizing profit...in your home....in a declining market

gurramok

Joseph Kuhr wrote: »

Thats an unlikely situation to be in for the case of someone upgrading (remember the value of the home you are selling is also going down). Although not for all. You need to assess the situation as its going to be different for everyone.

Why not?

It makes sense. Both houses (your PPR sale and your target house) are going down in price hence a cheaper mortgage down the line, it makes sense to any person with a grasp of basic maths.

Joseph Kuhr

gurramok wrote: »

As Firetrap exclaimed, affordability is the key.

When that returns for the majority, we will see masses of people coming back to buy a house to live in, not a gold rush style, but in a normal stable buying environment, thats when you have the bottom.

We are miles away from that scenario yet.

This is a contradiction to the overall argument put forward here on boards which is people should stay away at all costs. Now you are saying people should start buying when it is affordable.....golly gosh I think we actually agree on something That assesment, whether it is affordable or not, is an individual assesment based on individuals needs and situation. The generalised broad sweep that nobody should buy in a declining market is simply bad advice.

Joseph Kuhr

gurramok wrote: »

Why not?

It makes sense. Both houses (your PPR sale and your target house) are going down in price hence a cheaper mortgage down the line, it makes sense to any person with a grasp of basic maths.

And as I keep saying its all relavent to your own particular situation. An FTB upgrading from a shoe box to a nice semi-D might want to consider whether their inferior property is going to hold more value than the superior much saught after (comparitively speaking) semi-D. In otherword you may be suffering a 7% drop while your target home is only suffering a 5% drop. Its not uniform across the boards. Likewise the opposite is possible in which case simply walk away, I'm not for one second suggesting people should be stupid.

Joseph Kuhr

Boggle wrote: »

Personally, I see the typical demand for properties sitting around the 35-40k per annum mark so it will take a year or more to wipe off this excess supply. (I'm deliberately ignoring the shoeboxes in the middle of nowhere which I fear may never sell.
Worse again, supply may increase rapidly at some stage when alll those 10 year IO mortgages run out and the specuvestor cannot cover the capital cost of the mortgage...

You should most definitely ignore the shoe boxes in the middle of nowhere. Unfortunately if you have one of these you're going to stuggle even if there is a return to rising prices. People are simply more aware and can see a shoe box in the middle of nowhere for what it really is, a bad buy even at the best of times (A shoe box in a good location is a different story, but in a buyers market you're more likely to find a bigger property for the same price if you shop around)

Boggle wrote: »

Although anyone looking to buy a home should do so. Get real with finances though and ignore the fantasy prices placed on it by amateur hour auctioneers and offer what you can afford and are willing to pay. Sooner or later you'll catch someone desperate enough to shift property that he'll take the hit.

Absolutely. But in a market like this there's a lot of ways to get ahead in the game. You should be looking to get the best deal you can, thats my point. And somebody taking a hit is not necessarily showing signs of desparation. It would look like though and thats why I'm saying its possible for everyone to come away happy. Similar to the 2nd hand car market.