If I want to sell my 3 bed house in Nunhead London and buy a 2 bed flat in central London does it matter that the property market is falling?

Question

Should I do this sooner rather than later? If it’s continuing to fall should I sell my house asap, wait and then buy when it hits rock bottom?? Or sell up and buy in Australia?!

Answer 1

This question should probably be closed as "too broad" but a key part of your question that needs to be answered is: "What are your goals?"

Here is a small subset of goals that one could have:

• A comfortable home in which to raise a family and have good schools
• Maximize profits in real estate at the expense of comfort
• A relocation outside of the UK

So for a minute let's assume your overriding goal is to maximize profits at the expense of comfort. Still more information is needed.

Is renting out two bedrooms in Nunhead more profitable than one bedroom in Central London? Probably not when you consider the cost to transact real estate. So the recommendation might be to keep the Nunhead property and use it to fund a second Central property.

Obviously the answer would be very different if you and your family desired a move to Australia.

Answer 2

As with any other commodity, it is best to buy low and sell high. If your primary concern in buying and selling your home is financial advantage, then you have to prognosticate a bit before making a decision. If you feel certain that the market will continue to decline, selling now would be financially advantageous. That assumes that you will know when the market is bottoming out and you can buy a similar home for much less.

There are a few risks to this strategy that you should consider before making a decision:

1. If the real estate market does not follow the trend you are predicting, e.g. bottoms out soon after you sell, you could end up selling low. It's also hard to know when prices are at their lowest, so timing the buy is also not assured.
2. The market in your current location may be impacted differently than the market where you are buying. If Central London falls farther and faster than Nunhead, no problem, but the reverse could be true.
3. You may not be able to find a house you like at market bottom. Sellers don't want to sell low and the best homes in the best locations cost significantly more than the average. Sellers of the more desirable properties may hold out for more money or better timing, so a down market is not a guarantee that you will find the house you really want. You may either have to wait for a suitable property or buy something less than ideal.
4. The seller's broker/agent receives fees or commission. There are also closing and moving costs. The difference in housing cost needs to be greater than all of your costs for you to profit from selling and buying. You probably need at least a 5% market shift for the move to be profitable. If you rent in between, you will incur some other sunk costs, so the gap would need to be even larger.

If you need to move anyway, then it probably makes sense to sell soon. If you are deciding to move based on the current state of the market, think and plan carefully before you dive in. Also, be realistic about what you stand to gain or lose. Even if you don't profit from your move, it may be the best choice for many other reasons.

Answer 3

If prices drop then differences between prices also drop. If you want to buy something that is £100,000 more expensive today, then after a 20% price drop it will be only £80,000 more expensive, so there is £20,000 less money you need to find. On the other hand, if you want to buy something that today is £100,000 cheaper, the will only be £80,000 cheaper after a price drop, so you should switch today and put £100,000 in your pocket instead of waiting and having £20,000 less.

But then consider that switching homes is costly. My last move cost me about £15,000. That's a lot of money gone. And different objects can change prices at different rates. One home might drop by 10%, another by 30%. That totally changes your calculation.