The housing market..
First time buyer here (London, but interested to hear US opinions as also semi-relevant..). With all of the volatility in the markets, inflation and the impending rate rises, what are monkey’s opinions on house prices in the short to medium term? I can’t get past the idea that we are due a big correction in the next year or so. I’m looking to stretch myself and buy somewhere I can see myself living for a while, but concerned that it’s the top of the market. From another perspective, I’m conscious that as rates rise it’s becoming more expensive to borrow and waiting could end up costing an extra 100bps+ interest. Grateful for any thoughts..
i've heard this argument for the last 5-10 years from friends, family, industry etc.. Much like timing equity markets, most dont get it right!
I think the issue in London (and similar in the US) is a supply issue. there might be some correction but i doubt there will be a GFC-like one, perhaps more like a brexit-like one of 10%?
as someone who has just sold their first place, dont go for anywhere that is on help-to-buy (if you're considering them), they're 10-15% overpriced and most are fraught with issues
Thanks, helpful insight - especially wrt help to buy.
I get the whole thing about not timing the market, but prices are up 10% year to date, more in London, and if you’re stretching to afford something, even if prices fall back to pre-pandemic levels you’re in trouble right (negative equity etc.)?
There's a lot of US people here commenting, bringing in market dynamics that are not the same to the London property market
I'll add my 2 cents
Prices will go down a bit but not as drastically as people think, London prices took 2 years to recover from GFC, 2 years...
What will happen is that as people see the market getting less attractive they will just postpone sale, in an illiquid asset like real estate, this buy and hold mentality, much like in PE, tends to cushion blows
It also strongly depends on where you're looking to buy and what you're budget is
We have a two tier market with properties maybe at GBP1m level, not being super affected because people who can afford this won't be affected by cost of living crisis and they are not the super trophy homes in the ten's of millions that are vulnerable to swings
Properties at the 500k ish level will suffer some reductions, I'm already seeing reductions in my area.
You have decided to kinda buy at the wrong time, pre-rate rise would've been better -> that being said, markets seem to be pricing rates will come back down with an inverted yield curve so if you're comfortable holding on and then getting a variable rate mortgage perhaps?
You could also depending on the area and property use your position, depending on if your a cash buyer or not to negotiate a discount that will give you some head room
A lot depends on personal circumstances which I won't know, if you're looking to buy for next 10 years then whatever go ahead, next 5, maybe wait till 2024
Real estate is a long game not short so the changes to the market usually balance out provided buying in the right location. I am excluding all the short term investors here in my comments because that is a different strategy and has several faults, a bit like shorting.
OP this is the worst time to buy.
Rates have doubled over 4 months (highest since 2009, which was the middle of a global housing market crash)
Stock market is down like 25% from alltime highs. still going down. select blue chip tech stocks are murdered right now
GDP down. by Q2 we may have a confirmed recession (first time since financial crisis, over 12 years)
the average mortage payment has gone up over 40% in the past 4 months (not including any housing price appreciations)
YET - housing continues to go up 25% YoY, people buying waiving inspection contingencies, and getting into bidding wars
some places housing is up like 40% YoY
Does this make sense at all to you?
Appreciate the input - it’s to my point.
What’s the catalyst for a change in direction of prices then? Assuming there’s a significant lag given most people are on 2-5 year fixed mortgages?
All the genius tiktok’ers realizing they can’t raise rents by 30% a year infinitely, and the math just not making sense anymore
People outside of finance and tech are broke as fuck right now, especially with cost of chicken nuggets rising 20% a year
catalyst?
layoffs (already happening and will continue as rates rise and the fed dumps assets this summer and beyond)
people realizing they cannot afford their mortgage as prices go up on gas and groceries and MOST IMPORTANTLY student loans stop being in forebearance
people realizing the home they bought is too small and need to move (kids being born)
people having to move for a new job in a tighter economy
boomers trying to age out in their lifelong home looking at their 401k getting demolished and realizing they have to downsize to solve cashflow issues
and simply....fear. people realizing they bought their home off too much FOMO and now wanted to get rid of it at the current high levels before things crash and they are left holding onto an underwater home they never really liked
Buy what you can afford - don't worry about short term corrections if you plan on living there for a long time.
Bottom line is people need a place to live, and the rental market is atrocious in some areas so buying is the only option.
in which areas is rental market atrocious? just curious. I'm getting an opposite impression about big cities (NYC, LA) - very limited options for purchase and highly overprices but many more options for rent.
Single family homes in NYC suburbs
This is what people miss.
Dont try to time real estate. Time your finances instead. A lot of people are complaining they cant afford a house now and that's fine, just keep saving. Also if you arent married why the hell are you looking at single family homes. You are competing against people with two incomes lol of course you will lose.
And lastly dont ever view your house as an investment. It is not. Can you make money from your home? Absolutely. But any financial decision should be viewed through the lens of you are buying it for your own enjoyment - similar to a toy like a boat or nice car (though more essential) - NOT to make money. Same for remodeling the kitchen or doing new landscapping. When you view it through this more accurate lens then you wont get yourself into financial trouble.
It's the FOMO buyers, the need to get in because home prices go up (who gives a shit what direction it goes if you will live there the next 15+ years), the 'got to lock in my low rate! but cancel it out by paying 100k more for it!' crowd that gets wrecked when the tide goes out
Housing market is tied to interest rates, expectations the stock market (other store of wealth that people use to finance their purchases). Interest rates just pushed the cost of home ownership for the next buyer up massively, and it’s not reflected in market prices yet. Prices will be flattish at best. I would prioritize having liquidity, ie renting instead of buying a house right now. Keep the cash because (a) in a recession your own job security is more at risk - you may have to move or downscale your lifestyle, and (b) stocks are getting cheaper - use the cash to build your stock portfolio and you will have a better return than a house. In London you can always rent.
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