One writer explains further why now is a great time to buy property, and offers tips for both buyers and sellers.
We've had yet more property-price predictions over the past month from organisations and economists who've continued to get it wrong, year after year, the majority of the time. Nevertheless, they've infiltrated the press, as usual, stating their predictions as if they've always known best.
Prices having fallen around 15% over a year. Nationwide says prices are to fall another 12% (roughly). Historically, Nationwide's predictions have on average been as staggeringly wrong as every other forecaster's. (Read Cliff D'Arcy's article about that: Five Property Warning Signs To Watch.) However, buyers can still use the building society's figure to their advantage. More on that later.
A once in a decade forecast from me
All data from all sources right now are overwhelmingly pointing downwards. This is a rare union, so I would say that this is the easiest time in well over a decade to attempt to predict at least the direction of house prices over the short term.
Even so, how long the decline will continue and precisely how far is, as usual, pure guesswork. Hence why forecasters are wrong more often than they're right. (Read more about why we shouldn't listen to predictions here and here.)
Buy property now
If you're the sort to kick yourself for missing the bottom of the market then now is very likely too early to buy at current market prices. However, how will you know when you've reached the bottom? How sure are you that you will be able to buy before the price rises again?
...But, just to reiterate, I said it's too early to buy at current market prices. But you don't have to buy at those prices; you can persuade or panic the seller into lowering the price. Make an offer: knock off 15% to 20% from today's prices and stick hard to your guns. (Hard bargainers amongst you would no doubt go for 30%.)
When negotiating:
- Tell the seller that their property won't sell until they massively reduce their prices. No one wants to buy at today's price when they know it'll fall further in value.
- Point also to Nationwide's forecast of a further 15% fall. (Yes, it's more like 12%, but it won't hurt you to round up!)
- If the area you're buying in is suffering less than average price falls, you can still say the above. If the seller brings it up, you'll at least have started from a strong negotiating position.
- If the area you're buying in has seen greater than average declines, you should insist on an even bigger reduction.
- Remember that many sellers may still be trying to sell at last year's prices instead of next year's as they should be. They're living in a dream world, so do your research before making an offer.
- Don't be timid in how you phrase the above. Tell the seller (or agent) that your price must be met or there will be no sale.
Of course, your problem with this technique is that you don't know whether prices will fall further than another 15%. Many forecasters, Fool readers among them, think they will. Many other people say that you shouldn't buy in a falling market and that you should wait till prices are at their best.
However, following this logic to its conclusion, you `simply' have to wait for the bottom of the market. You'll probably miss the bottom and have to buy when prices start to rise again. At that time you'll have a lot more stress, because more buyers will roll up to compete for properties. What's more, you'll have paid more in rent in the interim, and not a penny towards owning your own home outright.
Make a sale now!
By reversing the above process, we can find useful guidance for those who are trying to sell.
There are many fewer mortgages available right now. Lenders not only have less money to lend, but they are concerned about further falls in house prices.
Furthermore, I suspect that sellers are stubbornly trying to hold on to today's prices, despite the fact so few properties are selling. The majority of these properties won't go until sellers get real.
The solution? Lower your price.
- Provided your area has seen the huge, average decline in sales numbers, and the average price declines, you could finally make a sale by reducing the price by a further 15% from today's price. This is more realistic, and gives the buyer less room to negotiate.
- If prices in your area have fallen more than average, you could at first leave it to the buyer to spot this, and then negotiate further if necessary. However, if prices have fallen less than average, you'll want to offer a smaller reduction. Be ready to educate the buyer about why you're not offering an even lower price.
- Once you've adjusted your price, you must advertise that you've done it or it is almost meaningless. This is a benefit to the buyer, so make it known.
- Hold your ground in the negotiations. Tell the buyer that you've priced in the rest of the fall already, and they can take it or leave it.
- Do your research properly. Ensure that you really understand the value of your property, because I've noticed that many estate agents have still been over-pricing them in order to secure the contract. Not very helpful.
It may be that prices in your area won't fall as much as 15%, so you might end up selling at a price that's a little too low, but selling 12 months earlier is probably worth that loss.
Are you happy with the price?
If you're buying a long-term home, as opposed to a property investment, you don't have to know precisely how much further prices will fall, so long as you're happy with the price you pay or receive. This is the contentious point on which I based my earlier article, The Time To Buy Property Is Now.
On the other hand, if you're only happy with scraping every penny out of it, you'll have to try and time the bottom. Or you could join those who plan to wait for the upturn to fight it out between them. And it will be a fight.
You might like to read something of the more conventional Foolish opinion in Laura Starkey's First Time Buyers Should Wait.
More: The Time To Buy Property Is Now
> Compare mortgages through The Fool's award-winning and highly-recommended mortgage service.