For the past couple of years, many young people have been eagerly waiting for the next big housing crash.
The reasoning behind this is pretty simple. “If house prices drop, then it will be easier and cheaper for me to purchase a home.”
Although this is a selfish way of thinking, I personally can’t blame them. For a lot of millennials, the thought of buying their own home feels like a pipe dream.
Whenever the topic of rising house prices crops up on social media, you will often see commentators advising everyone to wait for the next big crash.
Although these people think that they are being helpful, they are not.
Unfortunately, this line of thinking is extremely naive. It also ignores the stark realities of the housing market.
You cannot time the housing market.
House prices may continue to increase for another six years before they begin to drop. They may also just “level off” for a year or two before rising again.
The problem here is that nobody knows what tomorrow will bring. People will make predictions about an upcoming crash. However, many of these predictions will turn out to be wrong.
Take the following example.
You see a house that you like and it currently costs 200,000.
However, house prices are pretty high at the moment and they are rising by 8% every year. As a result, you decide to “hold off” until a crash happens or prices start to come down again.
Unfortunately for you, house prices continue to rise for another four years before they finally begin to decrease.
In this case, you might still end up paying more, even if you do wait.
- Year 1: 8% increase = 216,000.
- Year 2: 8% increase = 233,280.
- 3: 251,942
- 4: 272,097
- Year 5: 10% decrease = 244,887
- Year 6: 10% decrease = 220,398
In the unlikely event that you do manage to wait for six or seven years for the next crash, you will still end up paying more.
“Holding off” and trying to time the housing market also has other disadvantages.
You will still be paying rent.
You have to live somewhere for those 6-7 years. In other words, you are probably going to be paying rent.
If your rent is 700 per month, then that is 58,800 of your money that is going towards someone else’s mortgage.
Your monthly mortgage repayments might increase.
Many lenders will require that you pay off your mortgage before you reach the national retirement age. As a result, the bank might start to condense your loan into a smaller repayment period once you reach a certain age.
For example, if you are 42 years old and the retirement age is 65, then you will have to pay the loan back over 23 years instead of 30 or 35.
If this happens, then your monthly repayments will be considerably higher.
Mortgage lending becomes tighter during an economic downturn.
The economic turmoil associated with a housing crash will cause banks to tighten their lending rules.
In other words, they will approve less mortgages. They may also “pull the rug” on existing approvals.
For example, in Ireland, there were 88,747 loan approvals for house purchases in 2007. However, by 2011, this number had fallen to 12,834.
A housing crash usually only benefits cash buyers. These are people who have the cash on hand to buy a house without needing a loan.
Your income might also fall.
Another point worth mentioning is that people’s incomes usually tend to fall during a recession.
For example, your employer might reduce your hours or even force you to take a pay cut. In the worst case scenario, you might lose your job altogether.
If this happens, then your bank will most likely pull your mortgage approval.
Failed predictions about the Irish housing market.
Predictions are a dime a dozen. Especially when it comes to things such as housing bubbles, interest rates and economic crashes.
For example, in June of 2018, financial advisor Paul Merriman warned about the possibility of high interest rates and an upcoming correction. He also stated that first time buyers “should think long and hard about their options.”
Since then, house prices have continued to rise.
Three years ago, “The Economist” said that house prices in Dublin were 25% overvalued and that “the bull run in global cities’ housing may be drawing to an end.”
It is now 2021 and there is still no end in sight.
In November of 2017, economist David McWilliams predicted that Ireland was in for another property crash. He did not state when the bubble would burst. However, four years have now passed and prices are still increasing.
The Economist, Paul Merriman and David McWilliams weren’t particularly wrong about anything that they said. In fact, most of their concerns were valid.
However, despite all of their knowledge and experience, their predictions were still wrong.
Conclusion: Stop hoping for a crash. Nobody really knows when the next one will occur.
Although hoping for a housing crash is somewhat understandable, it probably won’t go the way that most people think it will.
Sure, you might get lucky and buy at the perfect time.
Unfortunately, that is very unlikely.
Although this article might come as a depressing read for anyone who is hoping to buy their first home, hopefully it will dissuade people from basing life-changing decisions on an event that might come tomorrow or ten years from now.