Thinking of selling up!. Advice please & we only have house a year

Refer to my posts above. I address this fallacy in full.
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I'm trying to make sense of your logic, but I can't.
For example, why do people make losses on the stock market? I buy oil at $100/barrel, I sell at $70/barrel, and immediately buy again at $70, your logic would dictate that I've lost nothing.
 
Camry is absolutely right.

The Op has lost 20K already whether she decides to sell the house or not
however This loss is irrelevant to the decision of moving or Not moving.

If the OP decides to move to a house that suits her needs better, she has still lost 20K + transaction costs, nothing more and nothing less. She doesnt reduce her loss by staying where she is and she doesnt reduce her loss by moving.

I think Camry's main point is that by moving to another house at this stage which suits her needs better which presumably has also lost value
she ends up in the same financial position which is -20 (apart from transaction costs)

Amen
 
...and further from the OP's message it seems they are trading up so their decision to buy a lesser value house a year ago means they owned a lesser valued asset in a falling market so the 20k lost is less than it would have been if they'd bought the 4-bed one year ago (assuming both houses fell by the same percentage). Maybe that's some consolation on the 20k.
 
Ok there are also other possibilities here.

What price you pay to stay in a house that you are not happy with. Sometimes it is best to take the hit now on a house that is your 'Home' first and foremost and not an investment.

If a person is unhappy in a house and for the sake of taking a hit of lets say 20k now then it might be the best solution. At the end of the day i would value happiness over any amount of money. And its generally the case that what annoys them now about the house they are in will often get more magnified the longer they stay there.

Also it might be worth considering that just because your house is falling in value doesn't mean the house they are now consider will fall in value by the same amounts, although that will be hard to predict but they are areas that will not fall in price or might fall by a much smaller amount that other places thereby negating any loss that you may take now....
 
Now, you find the price of petrol falls to 50cents. What do you do? If you sell, will you really "lose" money? OF course not, because you still need 10,000 litres of petrol, but will buy it will cost you less, which at market prices perfectly offset the drop in your asset value.
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If you sell the petrol, of course you'll lose money... or am I losing my mind?

You paid €10,000 for the petrol, and are now selling it for €5,000. Isn't that losing €5000? If you then buy another 10000l petrol at €5000, you're not recouping your loss.
 
It's like selling your own house and buying it back straight away. You have the same house and same mortgage. Apart from stamp duty and transaction costs you are in the same position.

General house price movements should not affect the decision to switch between two equally priced houses.

That said, stamp duty and transactions costs could be €25k. I suspect that would be enough to dissuade someone from moving.
 
Some interesting and highly diverging points of view on here - in fact quite confusing to be honest, although I think I understand the main arguments.
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Should I stay or should I go:

If I were in your shoes, I would forget about how much my house cost (including how much extra I put into it) as that money is now spent and what you have is a house that is worth x amount on the open market.

No buyer really cares what you spent on it, only what its worth.

If you overpaid for the house, or bought at a bad time, or spent money on improvements that did not fully add to the value, then that is history and you can not change that now or in the future.

Assumptions:

a) you are going to sell one and buy another immediately (not sell to rent) so you sell and buy in the same market conditions.

b) you can afford the transaction + moving costs involved (either out of the difference between the houses or out of pocket or onto your mortgage), otherwise no point even talking about it.


I would simply ask myself the following questions:

1. realistically how much will i get for my house ? (house1)

2. realistically how much can i get the other house for ? (house2)

If these are roughly equal then you are not trading up or down, so general market conditions are irrelevant. Market conditions are good for buyer, bad for seller. You are both so its swings and roundabouts.

3. how much will ALL transaction fees and moving costs come to? THIS IS ESSENTIALLY WHAT YOU ARE 'LOSING'. It comes out of your capital (savings) or your home equity, and its GONE if you move.

4. Is living in house2 for x number of years worth that (+ hassle) to me?

5. If I decide not to do it now, will I end up doing it anyway in a few years time, at the same cost as outlined in 3 above?

6. What do I save by delaying (nothing!!)

e.g.

house 1 = 390k (market value)
house 2 = 370k (market value)
so, more or less sideways move. Market conditions are irrelevant.

transaction + moving costs = 30k (please change this figure if inaccurate)

That means that if you sit tight, you have house1 to live in (but the house / area is not ideal for you).

If you move you have house2 to live in (which you prefer), but it will cost you 10k out of pocket, and 30k in actual dead, gone, money that will never come back.

If you live there for 10 years that is 3k per year, do you think that it is 3k well spent or not (only you can guess at this).

So, it depends how much better house2 is for you to live in, and for how long.

For whatever reason you want to live there, is it worth the 30k (to you)?

HOWEVER you must remember!!!
if you change your mind again soon after buying, remember you will only get 370k for this one. So I would not move now unless I was certain sure it was to go where I wanted to be for quite a long time!!

That's how I would look at it.

(And as an aside, you may feel that house1's value will decline in future compared with house2 (e.g. the neighbourhood is going downhill), so that is a factor in why and how much you want to move or stay put)

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Summary

IMO you can pretty much ignore the wider market movements in your example, as the two houses are so close in price.

The real 'lost' money is the transaction fees and moving costs. You have just spent 30k, and that money is GONE.

That explains how you end up spending 10k to live in a house that is worth 20k less than your original house on the open market right now.

But, you have your reasons to want to move, so you need to balance the value of living in house 2 for X years against the 30k (+ hassle!) it will cost you to move.

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I would welcome comments and am happy to be corrected if my thinking is flawed.
 
Another point to consider if the OP is feeling they might be best to wait is that their mortgage is €320k and the best they believe they may get for their house is €390k. If they wait another 18 months and after that time decide they really need to move as the house isn't big enough and the area has deteriorated they may find that the market has fallen further. If the future market price falls below the value of the mortgage under current mortgage rules they will not be allowed to move.

The fact is that as the market now stands they paid too much for their house. So they can either sell at a loss but buy a new house which is also cheaper than it was a year ago so they will end up with the same over-payment but in a house they prefer. Or wait hoping that prices go up but the odds are that if they do so will the price of the house they want to move to. So they will be in a similar financial position but have spent longer in a house they don't want to be in. Or wait and have prices continue to drop enough for them to end up in negative equity at which point they will have no way to move until prices rise above the value of their mortgage.
 
I don't see why everyone (apart from DerKaiser and Eamonn123456) is having such a hard time grasping the point that Camry is making.

The OPs have already notionally lost 20k of their original equity in their current house, based on today's value.

Assume they sell it, and buy a similar house in a different area for the same amount. Their equity position in the new house would stay the same (ignoring transaction costs for a minute). All they would be doing is rolling the loss over from one house to the next. They'd have the same mortgage and same amount of equity in the new house as they do currently, and have achieved the objective of moving to a new area.

The big downside is that you'd have to fork out transaction costs and possibly stamp duty in order to move. For that reason alone (especially if you get hit for stamp duty) I'd be inclined to tough it out where you are for the time being.
 
If you can afford it, being happy where you live is much more important than any perceived loss or gain in value. This is your home your talking about and it is a mistake to purely look at it from an investment point of view. When you are talking about spending c.400k then you should be content with the home you choose.
 
two scoops, cheers for your comment.

Can I just check with you about the following commment [my bold]:

two scoops said:
The big downside is that you'd have to fork out transaction costs and possibly stamp duty in order to move. For that reason alone (especially if you get hit for stamp duty) I'd be inclined to tough it out where you are for the time being.
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how long would you tough it out? I mean, until what occurs?

Do you mean tough it out until you are very sure you want to live in house 2 for a considerable amount of time? In that case, I agree.

But toughing it out just for the sake of it is not going to help the situation. Someone spoke earlier about waiting for things to rectify themselves again. That makes no sense. The costs of moving will always be there waiting for you no matter when you make the move.

I think the comments by Iguana make a lot of sense and add an extra factor to consider.

OP, what do you make of the responses? Hope we have not wrecked your head completely. Ask for clarification if you need to.
 
Camry's sums are correct, but largely irrelevant because they ignore 2 important factors:
1) transation costs. As has been pointed out, these are not an insignificant figure.
2) LTV. The banks at best will loan you 92% of the value of the new house. That's fine if you have the cash to cover the shortfall plus transaction costs, but is probably not the case for "getting on the ladder".
 
Precisely Camry. Transactions costs, especially stamp duty, have always been the real barrier to trading up and down. That fact has been hidden by price movements.

It's the same arguement as getting on the "ladder" by buying a starter home and moving within a few years, you're banking on capital appreciation to cover these costs.
 
Tiger is correct that the practical constraints are key here but I think our beef is the concept that people should not switch between two equally priced houses because of past market movements
 
Camry said:
I would suggest it is a bit more complicated than that. And to be clear I am talking about your PPR. A house, as an asset, is a stream of future rental payments. If the market writes down the price of this asset you have to ask why? There is really only two things that detemrine the price:
  1. The expected real rents it will attract
  2. The discount rate applied to these rentals.
If the price has fallen because future real rents are going (expected) to be lower, you lose on the sale, but you are going to gain on the reduced rental payments in the future.

If the price has fallen because real interest rates are expected to be higher over the future then you lose on the sale, but you gain because you will earn an increased return on you capital from the now higher interest rates (or pay less in interest if you have a mortgage).

For extra credits, you can use the same logic to explain why an increase in house prices doesn't make you "wealthy" via your PPR.
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What about a 3rd reason?

3. We were in a housing bubble which has now burst and prices HAVE fallen over the last year.

To believe that the residential property market only moves because of the 2 reasons you have given is very naive IMO.
You are assuming a perfectly efficient market, which for any market is unlikely, but for the residential property market is exceptionally unlikely.

Your rule has so many holes in it isn't worth discussing IMO, my rule is much simpler.

If a house is worth less than the purchase price plus any improvements paid then you have lost money.

I don't see the problem with losing money on a house, I have myself, but you seem to be creating a very strange rule so that you can hide your loses from yourself.
 
You can't really attempt to apply logic to bubble market pricing.

That doesn't mean that the logic is flawed however :)
 
Good lord!, look what happens when my broadband goes down for an entire day! :). The price we paid for the house is what it is worth now, it hasn't risen or fallen in value. We put good floors, tiles, carpets, blinds, all bedrooms and bathrooms decorated beautifully, really nice lights all over the house and we have decked part of the back garden, still not finished. We were going the sell the house with all our appliances but I don't want to do that so they are worth quite a bit.
We are not going to rush into this, we like where we live it's just family stuff has changed dramatically in the last 3 months and we could do with a 4th bedroom & bigger kitchen!.
We have savings of €15k so if we sell soon, we might have to use that for trans & legal costs if we take a hit. But, considering both houses we are looking at cost €370k we might be okay and hope to stick to the same monthly mortgage repayments.
Thanks for all the interesting advice folks!.
 
xman said:
You can't really attempt to apply logic to bubble market pricing.

That doesn't mean that the logic is flawed however :)
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But his theory makes the assumption that everyone selling a property is going to buy another property.
 
Headachecity said:
We are not going to rush into this, we like where we live it's just family stuff has changed dramatically in the last 3 months and we could do with a 4th bedroom & bigger kitchen!.
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While of course you shouldn't rush into it you do need to be aware that you only have freedom to move as long as you have equity in the house. If prices fall further while you wait and a point is reached where your house will not sell for more than €320k you will not be able to move until either you can make up the shortfall or until the market rises again.
 
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