Selling house - buy again or rent for a while.

Firstly, in order to avoid falling foul of the posting guidelines, I am not asking for speculation on house prices but I do need to assume a figure for house prices in order to ask the question. For the purposes of this question, lets assume that current trends continue and house prices fall 8% in the next 12 months.

We are currenty selling our house and realistically expect to have €385k cash after clearing the mortgage and any fees etc.

We expect to buy a house for around €550k but are considereing renting for a year first while keeping an eye on the price of property.

So the figures are:

In year 1 for renting option:
Rent: -€12k
Interest from cash on deposit (€385 x 4.3% less 20% dirt): +€13k

Total (1): +€1k

In year 1 for buying option:
Depreciation (€550k x 8%) : -€44k
Interest on mortgage (€170k x 5%):-€8.5k
TRS: +€1k

Total (2): -€51.5k

Have I missed anything? Any comments other than on the validity of the 8% assumption (which admittedly is the single most critical figure to all this!)

Many Thanks...

does your 550k number include stamp duty?

Have a think about this. Say an awful lot of people expect prices will fall over the next year or so and are holding off buying till then. This type of activity defers current demand to a later date. Is it possible that if you look now you'll actually get a better deal than you think is out there because of this fall in demand?

Also, all those people deferring purchase to a later date will come back into the market at some point, it might be next year or it might not be for 5 years.

I guess I just like to believe that if the majority of people expect prices (of any asset type) to fall, then it will happen sooner rather than later.

Kemo Sabe,

You are quite correct, I forgot include for stamp duty which will make the difference in the choices more pronounced.

DerKaiser,

As far as I can read from your post I think we agree. Yes if lots of people hold off for now, then demand will be deferred, and in any asset class if lots of people believe prices are dropping then they are.

We did consider a few options around selling our house. One was to rent it and the figures just did not stack up at all in our view. So the question then moved to: if it does not make sense to own a house and rent it out to tenants, does it make sense to own a house and live in it (or rent it to ourselves effectively). I know the situation is not quite the same due to tax etc but the figures as I gave them in the original post seem to indicate that the latter does not make sense.

I realise that if everyone does what we are suggesting, then this in itself will affect the property market but I doubt this will occur. Our personal circumstances are more flexible than most.

I know some might say that we are betting on the market to the tune of €50k by renting now. But the point is we are betting by buying also. Either choice is a bet, I just fancy betting on the bear more than the bull, that's all.

I think it's a no-brainer myself, except my time horizon would be longer than one year. Luckily renting will give you that flexibility.

Thanks Kemo Sabe,

In truth we would rent until the market levelled out. I just suggested one year for the purposes of simple comparison between the two options.

Thanks for you response.

I would say that if this next house is to be a long term home then I might go for the haggle hard and buy now option, leaving the economics slightly to one side. If the next house is another stepping stone to presumably a final home type property one day then rent rent rent. Good luck

Only problem is that you might get your timings wrong or not benefit all that much for all of the inconvenience of waiting.

It's probably a good idea to have your own place sold and rent temporarily before looking for somewhere new.

General prices may very well move in the next year but your own bargaining power is likely to count for more in terms of finding a good deal

There was a long thread on this topic recently where most of the ideas were thrashed out, do a search.

Also, all those people deferring purchase to a later date will come back into the market at some point...

Click to expand...

I'm not convinced that those deferring purchase will represent any kind of serious upwards price pressure.

One of the arguments against 100% mortgages was that they tended to bring future demand forward. A lot of the people who may have been lured into these products in 2005(?)/06/07 should have been the market's future buyers. In addition although there are certainly still buyers waiting to purchase - supply levels seem to be continously moving in the right direction for them.

Northern Rock would give 5% on that €385k.

€15k after DIRT.

Cash is king at the moment. - So you could get an additional 10% off a price if the seller really wants to sell.

One option is to look through myhome.ie and see if theers a property you like thats on page 7 / 8 + of your desied location. The longer the property is on the site the further it fass in the ranking and as such the sellers may be much happier to sell.

Today's rate increase from AIB will put more pressure on the market, and it may be the end of the year or early next year before rates start to come down again.

I expect that once people are fairly certain that rates are starting to come down, then prices will stabilise / rise a small amount, but we won't see the massive rises of previous years.

The other thing is to keep an eye on the market and wait til that dream home that has everything that you want comes on the market - you'll be a cash buyer with no chain and therefore you get the arm bitten off for the sale.

Just to clarify you are speculating & asking others to speculate about prices.
Also your figures:

In year 1 for buying option:
Depreciation (€550k x 8%) : -€44k
Interest on mortgage (€170k x 5%):-€8.5k

Click to expand...

bear no relation to each other. It's not depreciation you're worried about unless you plan to resell again in the short term, it's how much will the house be cheaper. Interest is an annual expense that you will have over the life of the mortgage, which will finish a year later if you start the mortgage a year later.
The figure of 8% is notional, I assume you're only planning to buy one house not 10,000?
Finally you mention "we", so I assume family or at least a "significant other" comes into play. Don't forget it's not all about money, there's stability & quality of life factors as well.

My opinion? I believe prices are dropping & will continue to drop. I would also rent in your position but wouldn't be trying to time the market. Rather I would see there is no rush to buy and would keep looking for the right house at the right price. Only you can decide what that is.

Thanks to everyone for all the replies.

Eamonn123456, I did a search before posting and did find some similar posts but it did not answer my queries so I posted my own query separately.

jambo.ie, thanks for that, I based my figures on Rabo as I am still a bit NR-phobic since the great bank run a few months back. I know the arguments for them being the safest at the moment etc but that's another discussion.

tiger, I do not know any better way to make it clear that I do not want to speculate than to say so plainly in the original post. Most pension products use a nominal figure to demonstrate potential returns whilst not guaranteeing them - I expected my approach would be viewed in the same way. Maybe you would be happier if I rephrased my question to 'had I sold and rented a year ago vs sold and bought, what would be the position in each case'. My only request was to verify that my calculation method was correct. (As it turns out, I overlooked stamp duty so I am glad I did post). I am not sure I get your other point about buying 10,000 houses etc.

I agree that quality of life factors are a major consideration. My wife and I have decided to move in any case and we would not uproot ourselves from our home just for financial reasons. We think that it would be under less pressure to sell first and then buy afterwards in order to not be under pressure to do either. If this means renting for a few months then so be it. This leads us to think whether renting for longer term might be better and hence the question.

Thanks again to everyone who responded.