Err, What?

We\’re in a market that is forced to trade only one way – downwards. House prices are falling, so sellers have little incentive to put their property on the market

Umm, falling prices is a great reason to put your house on the market. Sell, bank and rent. It\’s rising prices that are a disincentive to sell an asset.

8 thoughts on “Err, What?”

  1. “…that is forced to trade…”: journalists have a knack of seeing “force” in all sorts of situations where violence and coercion play no part. Why is that?

  2. But the advice to stock market investors is always ‘sell into the rise, buy into the fall.’ Of course, I’ve been doing the latter all year, and I have the hypertension to show for it, but how is this different?

  3. Neither rising nor falling prices are an “incentive” to either buy or sell; we’re simply talking about two different ways to describe the same events–two different points of view.

    It’s much the same as people saying, “when interest rates rise, bond prices decline.” Again, the situation is one of identity, rather than (as some seem to believe) of cause and effect.

    The standard advisements are generally correct–except when they’re not. That’s what is meant by “uncertainty.” prudence is the attribute, not of superior predictive ability but of recognizing and providing for the risk inherent in every action

    The only thing that may be said with any degree of certainty about those of truly superior predictive ability is that they don’t make their livings by advising others on what to do–they do it themselves. The takeaway should be obvious but it usually isn’t.

  4. Umm, falling prices is a great reason to put your house on the market. Sell, bank and rent.

    Well, yeah…to a point. And if you buy a bigger place later, a 10% fall across the board will mean you gain more with the discounted big house than you lose on your small, cheaper house.

    But it makes just as much sense to keep your house and sell in twenty years when the 5 or 10% drop has become pretty irrelevant and the time suits you better, maybe for downsizing or whatever. I get the feeling that most people don’t see their house as a particularly liquid asset to be bought and sold for capital gain. I’m about to buy in a falling market because I want to live in my own house and do some renovations.

  5. mark, houses become liquid assets when you have more than one of ’em, or are willing to live in a tent and reap the equity from your primary dwelling. They’re not as liquid as shares or bearer bonds or big sacks of cash, but they’re not totally illiquid either. And like any investment, they have a time value associated. £300,000 might be worth more now than £400,000 in ten years’ time.

  6. David, I accept that houses are liquid. Less than cash but more than, say, a former cargo ship that someone might want to offload for decontamination.

    My point is that while Tim is suggesting something entirely reasonable from a financial point of view, the public at large have a less than rational relationship to the houses they live in. Selling one now to buy again in a few years time when the market turns is something that many people won’t do because they would rather stay in “their” house than rent someone else’s, even if it costs them money. I’m from the “rent forever” school because it is a simple fact that here in Oz shares always have done better long term. But the boss at home is entirely committed to owning forever and that’s what we’ll be doing.

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