Why Buy in a Falling Market?

While most buyers are running for cover there are actually very valid reasons to buy in a falling market. Remember that local markets fall and rise all the time (see The Media and Property Prices ).

Why ‘first time buyers’ buy

While most of the population is obsessed about buying in a rising market there is a large section that simply want a place to live. They will be thinking about a home for the next 25 years and know that they could wait two years, but that would be two years of their life that they could be in a place of their own.

The emotional drive to have their own fall walls is much stronger than playing the waiting game for a crash or for the bottom of a crash.

Why ‘second time buyers’ people buy

Many homeowners who are looking to go up the property ladder benefit greatly from a drop in the market. They may have, for example, an apartment worth £250,000 and the type of house they want is worth £500,000. If the market drops by 10% their property is worth £25,000 less but they place they want to buy has gone down by £50,000.

By choosing to buy in a falling market they have saved £25,000. A substantial sum of money. This difference is known as the ‘trading gap’ and the more prices fall, the more a buyer will save when upsizing.

Why speculators or developers buy

Even the most educated property professional will admit they do not know when the bottom of the market will occur. Experts have failed to predict it (see Making House Price Predictions ) so how can they.

Furthermore by the time the media is reporting a rise in prices the market is already well underway and they will be competing with the stampede of the herd who were also waiting for the same message.

So at some point they will feel values have dropped, values may drop further, but they will eventually rise. They also know that they will be in a good bargaining position to have an offer below the asking price accepted. Many see property as a ten year investment so even a 10% loss in the short term will not make a major difference to their purchase.

Why buy to let investors buy

As far as purchase prices go their motivation is very much the same as speculators and developers (see above). But as an added bonus they know many perspective buyers have withdrawn from the market and a great deal of these will be looking to rent.

While values are moving down the rent that can be achieved is often substantially higher than in a rising market and so for the buy to let investor there are good profits to be made.