house prices

Date: 2005-09-18 12:02 pm (UTC)
The problem with London house prices is that they are influenced by so many varying factors. As chaos says, the majority driver in a house purchase is finding somehwre to live. But it is slightly more complex than this. Let's look at the choices for the purchaser:

a) Buy somewhere in London or buy somewhere else which makes for a longer commute time to London.
b) Buy somewhere in London or buy somewhere else that entails getting a new job (or not taking up a job in London but taking up a job somewhere else).
c) Buy somewhere in London or rent somewhere in London.
d) Buy an investment property in London or buy somewhere else.

People invariably claim that they have "no choice" in matters where they most definitely have a choice (the "I have to have a car because I live 30 miles from where I work and there's no public transport" is the most frequent type of false "I have no choice" argument). If the market moves pricing far enough, people realize that they do, after all, have a choice. It just isn't one that they want to make.

Anyway, before I run out of space, my point would be that there are factors supporting London prices which do not support prices outside London. That does not mean that the price level is sustainable. If you are getting more bang per buck by renting, then rent. If you would get more by buying, then buy. If you have an interest-only mortgage, there is no difference between renting and buying except in the latter case you are punting that house prices will increase relative to average earnings. Since they appear to be at an all-time high in this respect, continuing to rent makes a lot of economic sense. Just try to build up a big bankroll so that you can buy when the downturn reaches its nadir. Buffett got the end of the dotcom bubble wrong by two years and he may get the dollar's fall wrong by more than that. But, eventually, reality catches up with the market.

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