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Why house prices fall - and what you can do about it

If you’re thinking of buying or selling your house, it’s hard to ignore the question on everyone’s mind: what’s happening with house prices? Will prices fall further, or will they rebound and go back up? Nobody knows for sure, but there are some signs we can look at to get an idea of what’s going on. This article explains why house prices fall and how you can find out what’s happening with real estate in your area.

How house prices are set

The balance between demand and supply sets house prices. When buyers outnumber sellers, prices will rise; when sellers outnumber buyers, prices will fall. 

The supply side of the equation often falls outside of our control, but there are many things we can do to help slow or increase demand for a property. Reducing your expectations might also help when negotiating with a seller – it's important to remember that if no one agrees on the price, you're in trouble.

The long-term trends in property markets

- Over the long-term, UK property markets tend to be much less volatile than in the short term. The returns from rental properties have tended to offset the fluctuations in market value. 

- Equity withdrawal during recessions has allowed people to make up for their lack of saving, as property values are likely to recover over time. House price rises have also provided opportunities for substantial capital growth for those who were able to take advantage of such periods.

Risks when investing in property

One of the risks when investing in property is fluctuations in the housing market. Rental returns are far less predictable than those on shares, bonds or bank deposits. And while if the price of your property goes up you may be able to borrow money against the equity in your home, this may not be a good idea if the value drops. 

One way to mitigate risk is to invest in more than one property so that any unforeseen incidents happening at one will have minimal impact on your investment portfolio.

Things to remember when buying property

Before buying property, remember to include the following in your budget: stamp duty (a one-off tax payable on purchase), estate agent fees (on average 1.5% of purchase price) and legal fees (approximately £500).

What are the things to remember when buying a property?

Things to know before you buy property

Before you buy property, there are a few things to know. 

First, have a clear idea of what you want your property to be for. Do you need to work from home? Is it somewhere you intend to retire? 

Second, when comparing rates between lenders, don't forget to include the fees as well as the interest rate.

Third, Check the market condition whether it is a buyer or seller market and whether it suits you or not.

What happens if there's a housing crash?

If there's a housing crash, a number of things could happen: 

The first is that the housing market could stall. With the market not moving forward, demand will suffer, and supply will begin to pile up. Eventually, these factors lead to a downward spiral that would result in sharply dropping home values. There may also be an uptick in mortgage defaults as homeowners struggle to make payments on underwater mortgages worth more than their homes are worth. A decrease in mortgage payments would only add fuel to the fire by worsening the demand for homes. And if you thought foreclosures were high now, wait until they skyrocket if this happens!

How will interest rates affect home loans?

One of the factors that will affect the rate of house price falls is interest rates. When there is a period where interest rates go up, this tends to put pressure on people who have variable mortgages. This in turn puts pressure on home loan seekers and often makes them reconsider their purchase as they are unsure whether they will be able to meet their repayments in the future. Interest rates need to be high enough for people to buy, but low enough so that they feel like they can afford it.

Is it better to rent or buy?

There are a number of considerations to take into account when determining whether or not it is better to rent or buy. 

There are no clear-cut answers for those seeking to enter the market, but the general rule of thumb is that it's better to buy if you plan on staying in the same home for three years or more, while it's better to rent if you want flexibility in location. If your plans include moving frequently, investing in rentals offers more stability and may be worth considering. In a tight rental market (where fewer homes are available), it may be easier to lease because property owners tend to lower their asking price due to a shorter window of time during which they can fill their vacancies.

you are one of the home buyers looking for homes buy they are out of your range, in this case, it's better for you to rent a house.


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