The Time To Buy Property Is Now
Ignore all property-price predictions. The time to buy property is now. Neil Faulkner explains why.
It's my way to have consistent rules about things. If I've put an appointment in my diary then at that time and date I will do it. I don't confuse myself or mess people around by shuffling appointments.
Also, when I've decided to do something, I don't sit around. I get going. It's how I ensure that it gets done.
My approach to finance is similarly consistent. I use the same sort of simple but unbending rules.
One money rule that I always follow is to make decisions based only on what I know. Specifically, for the purposes of this article, anyone following this rule must ignore all short-term financial predictions.
All of them.
At all times.
The first reason for this is that, if you're doing all the right things with your money, you can weather the bad periods regardless. You don't need to guess when they'll occur. You also don't need to make guesses about when things will turn better. What if you get either of these guesses wrong?
The second reason is that economic forecasters have an appalling record for predicting things:
Property-price predictions
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See the guideWhat gets overlooked by the media is that forecasters get it wrong more often than they get it right. Some forecasters have got it right so far for 2010. But just as many forecasters have got it wrong. Others got it right only after long periods of calling it wrong.
Right now, prices are slowly rising, and many commentators predict that they will continue to do so. Then again, people predicted that property prices would fall for years, but they kept going up, despite a lot of evidence saying that they shouldn't.
What the media often fails to mention is that nobody knows what's going to happen to house prices - including me. So why do I think the time to buy property is now?
Buy property now
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Based on my financial rule ‘make decisions based on what you know only', it is always the right time to buy property, regardless of property predictions... Mind you, this is provided that all the things that you know fit too. Here's what you need to ask yourself, so that you can decide whether you should buy now:
• Can I afford to buy the house I want, including all the mortgage costs?
• Could I still afford it if interest rates went up a couple of points over the next few months or years?
• Is the property worth the price to me?
• If property prices fall I may be stuck in that property for a while because I couldn't afford to move. So: can I stay in that property for many years if necessary? And would I be willing to?
If your answer is ‘Yes' to all these questions then you should buy that house.
I knew the market would go down when I bought!
You buy, and prices go up. You feel happy. What if house prices then go down?
If it was me, I wouldn't give a Hoover Dam. I would have bought when I could afford it and I would know I'm not going anywhere, so its value at the moment is irrelevant. I would also feel the price I paid was worth it. Furthermore, I would have peace of mind: I would know I can afford it.
And, finally, I would be on the ladder! Hooray!
What if you don't buy now?
Buying your first property? Check out these top tips....
Yes, prices may well fall 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?
Using, or making, financial predictions doesn't fit my style. However, my philosophy isn't for everyone; I can understand why some people might want to take a chance. But, just remember, it's a lot less easy to predict these things than many financial commentators would have you believe. Can you get it right all the time? Most ‘experts' don't even get it right half the time.
I'll continue to sit in my comfortable world with no worries about whether I've called the market right.
This is a lovemoney.com classic article, originally published in June 2008 and updated.
More: Free online banking tool | Landlords: Cut your tax bill! | You’re destroying the value of your home!
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Comments
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I agree that people should start looking at houses as homes, not an investment. But the key thing is, depending on at which point you make the decision to purchase your ultimate home, you can be get trapped most of your life paying a large proportion of your disposable income towards mortgage, for the sake of having the house.
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Aquasponge, I disagree that buying expensive stuff is somehow relevant to the debate. At the end of the day, it is simply a matter of discipline and there are plenty of homeowners who are savvy spenders. Your argument is a double edged sword. To illustrate my point, I can personally vouch that I used to spend considerably more on meals out in restaurants / bars / on late night taxis when I was renting. Now that I have my own home with a kitchen made to my taste and plenty of space for entertaining, I find that cosy evenings in and parties for friends actually save me money! (I bet you just can't get a great bottle of Reserve Rioja at ANY London bar or restaurant for 8 pounds a bottle, whereas at Sainsbury's you can). Also, statistically it is not cheaper to rent. You only need to compare the rental prices versus buying with a (semi)decent deposit. I know, because a friend of mine kept renting through the last 5 years, whereas I bought my place, and she ended up paying considerably more renting similar type of property that I own. Also, let us not forget an important factor: inflation. You seem to omit the fact that inflation is eating into your renter's saving pot year after year. Whereas inflation effectively reduces the "real" debt of the homeowner over time...
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I do get frustrated when people confuse renting with dead money. A mortgage is usually made up of interest payments and capital repayments. e.g on a £250k mortgage, on 5%, this should equate to roughly c.£1040 monthly interest payments and c.£800 on monthly capital repayments. Now if you can rent this property for c.£850 a month and put c.£1000 into savings each month then……. you probably get the picture. Now consider that base rates are at a 400 year low and 42% of “owners” who have any kind of debt attached to “their” property are on interest only mortgages; so it is these owners that will be renting until they die coupled with the risk of capital outflows in the short term – the renters above are building capital (at c.£12k a year). Also owners usually fall into the trap of buying lots of high costs items they can’t really afford e.g. kitchens, carpets, sofas, bedroom furniture, landscaped gardens, bricked front drives etc. etc. and have largely contributed to this countries huge and unsustainable debt levels. I know where I would rather be right now.
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02 June 2010