To Buy or To
Rent?
One email I recently received does point up a particular problem with
house purchase at the moment. This particular couple had a hard time
selling a house. It took years. They then bought another, and because
of changed circumstances, they are considering selling again, once
again into a very difficult market. That's not unusual. It probably
strikes a chord with rather a lot of readers.
This does point up a pertinent problem; well, two actually, if you
count the corollary. The first is quite simply: should you be selling
property right now? I cant answer that one because for once in my life
I really dont know where we are heading. I dont think house prices are
going to go up in the near future, but I have no idea whether they are
likely to crash. I am sitting on the fence, and saying they will sag
gently. So far I've been right.
If you have to move, then you need to price your house sensibly. There
is no point in waiting for a better time. That isn't going to come in
the near future.
The other side of the problem is the purchase conundrum. People have
this ingrained belief that you have to own a home. I dont see it. I
suppose that comes from sitting comfortably in a home I already own.
But at the moment there is certainly no commercial sense in owning your
home. It is probably slightly cheaper to rent, but in terms of cash
outlay there isn't much to choose between owning and renting, and that
is how things should be.
The great unknown is-- when interest rates are going to rise, for when
they do, the cost of the borrowing is going to rise considerably. That
is when the price of houses will come down rather rapidly, and it will
be cheaper to rent.
Of course, interest rates may remain on the floor for another decade.
If they do, then buyers will be relatively comfortable, but they still
have the problem of a sluggish market, so when they want to move they
find they are stuck. If you rent, you merely have to give a month's
notice, and off you go.
If interest rates rise then renters will be in a better position, as
rents will not rise anywhere near as quickly as borrowing costs. In
fact, those rises will lag the mortgage rates by some considerable time.
If you are considering buying at the moment you either need to buy low,
or hold off and rent. All this advice, if taken, will naturally lead to
lower house prices anyway.
As I have been saying since 2004, I can wait, and if I have to wait
another ten years before buying again in the UK, then so be it. Real
estate investing is a long term affair. You can be in for a long time,
and out for a long time.
Suppose you dont need a mortgage. What do you do with your money while
renting? I'll have a quick stab at answering that question next week.
Meanwhile, have a good week.
john