I have just sold my house and gone into rental because the new house sale fell through. I have £110,000 in the bank and a mortgage offer in place at 3.6% and looking at buying a house at around £425,000.
So with all the doom and gloom should I buy now or wait and see if the house prices drop like most "experts" predict.
It's an interesting question but unfortunately it requires a bit of crystal ball gazing. The short answer is no one knows for sure.
Where are house prices headed?
First of all if we look at house prices - then yes they are likely to continue to fall, if you believe most analysts, but it depends on where you are buying. As you know London prices have stabilised while prices in other parts of the country prices have plummeted. One thing for certain is that you will never catch the bottom of the market.
However, if you really want to know what's going on in the UK housing market there is one, rarely reported, statistic that you should keep a close eye on - housing transaction volumes.
Why are housing transaction volumes a good indicator of property price trends?
Basically it boils down to supply and demand. When demand for property increases due to, say, easy credit or an improvement in the general economy then prices will start to rise. When demand drops due to credit restrictions or a recession then prices will start to fall, or at the least tread water. And as the graph below indicates housing transaction volumes have historically been a good indicator of the house price trends. The graph charts up until the end of 2011. But to give you an idea on where we are now, transaction levels for January and February were little over 43,000.
You don't need to call the bottom of the housing market
But why obsess over calling the bottom of the market? You are a chain free purchaser which gives you massive bargaining power which you should use to your advantage. By negotiating down the price of your next house you will already protect yourself from any house price downturn. While of course you don't want to overpay for your house, ultimately you are purchasing a home to live in. Unless you plan to downsize or unlock the future equity in a property, house price movements are a paper loss/gain for most people.
Also you need to be aware that your mortgage offer will inevitably expire and there is no guarantee that a similar offer will be back on the table. In the face of increased borrowing costs (mostly the result of the eurozone crisis) lenders could put up their rates or tighten their lending criteria.
I hope that helps
Money to the Masses