# Falling Rents: This is a good thing, right?



## ajapale (13 Apr 2008)

In another thread in the property investment forum the following observations were made:



JohnBoy said:


> .....cheaper rents would be great news for all the renters out there. We cheer cheaper TVs, flights and cars. Why not cheaper accommodation too?





Howitzer said:


> ... Like many of the other items that form the basket of goods used by the CSO to estimate inflation the Government, Unions, and society in general, should welcome lower rents as they would cheer lower fuel and food costs........



Now I can see why investors in residential property might not welcome lower rents I agree with the posters above who think that society in general should welcome lower rents.

What do other AAMers think?


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## Brendan Burgess (13 Apr 2008)

Suppliers like high prices, consumers like low prices. So falling rents are good for renters. 

Likewise falling house prices are good for people who are buying houses, but bad for people who are selling. This is a bit more complicated because falling house prices can contribute to an economic slowdown. 

Warren Buffett makes the point that farmers like high beef prices and consumers like low beef prices. So investors should like when prices of shares are low. I would generally be an investor so I should be appreciating the low share prices we have now. But I do get a buzz when I see the value of shares I already own rising. What matters most to me is the price they are when I sell them which will be in a few years to fund my retirement. 

brendan


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## MrKeane (13 Apr 2008)

Brendan said:


> Likewise falling house prices are good for people who are buying houses, but bad for people who are selling.
> 
> brendan


 
Falling house prices are often good for sellers who are trading up.


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## smurf (15 Apr 2008)

Why do you think this? 
If you are selling to trade up you will get less for your own house? 
OK you pay less for the trade up. 
But isn't the ratio the same?

maybe I am missing something?


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## dtlyn (16 Apr 2008)

smurf said:


> Why do you think this?
> If you are selling to trade up you will get less for your own house?
> OK you pay less for the trade up.
> But isn't the ratio the same?
> ...


 
Well, he says OFTEN good. So in the case where the rate of decline of your own house value is less than that of the house your trading up to AND/OR ( assuming the trade-up is more expensive ) the rate of decline is equal or greater within a certain bound. 

So if you're house is worth 300k and your trading up to a house worth 500k

300k       500k      ( 500k - 300k  =  200k Mortgage)
-10%      -10%     ( 450k - 270k  =  180k  Mortgage)

300k        500k
-10%       -15%    ( 425k - 270k  = 155k Mortgage )

300k        500k
-15%       -10%    ( 450k  - 255  =  195k Mortgage )


What? I was bored.


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## MrKeane (16 Apr 2008)

Like I said often good.

Simple example, all houses reduced to half price.

My house from 500k to 250K
Trade up house from 800K to 400K

Cost to tradeup was 300K, now its 150k

House price rise / falls appear to be measured in % so it would suggest that broadly speaking if the market falls 20% and you are trading up it will probably work to your advantage.


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## Satanta (16 Apr 2008)

MrKeane said:


> House price rise / falls appear to be measured in % so it would suggest that broadly speaking if the market falls 20% and you are trading up it will probably work to your advantage.


While trading up, a smaller percentage drop in a larger value property can still provide savings (as illustrated in dtlyn's calcs), so even if the % drops aren't consistant (when has property ever been consistant) a saving can (sometimes) be made. 

Basically, Brendans rule of thumb holds true. A falling market is good for buyers and bad for sellers.... it just so happens that when trading up the pro's for the buyer (trader uper) CAN (but not always) outweigh the con's for the seller (also the trader uper).


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## Camry (1 May 2008)

Satanta said:


> While trading up, a smaller percentage drop in a larger value property can still provide savings (as illustrated in dtlyn's calcs), so even if the % drops aren't consistant (when has property ever been consistant) a saving can (sometimes) be made.
> 
> Basically, Brendans rule of thumb holds true. A falling market is good for buyers and bad for sellers.... it just so happens that when trading up the pro's for the buyer (trader uper) CAN (but not always) outweigh the con's for the seller (also the trader uper).


 
Cheaper housing is cheaper housing.

Thumbs have no relevance.


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## Jethro Tull (2 May 2008)

as i said on the other thread mentioned, I fail to see how a fall in prices of a basic need is a bad thing.

If you are an amateur buy to let investor suckered in by the (IMO almost criminal) VI and FF spin put out over the last 18-24 months then you'll forgive me if I don't have too much sympathy for you.


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