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Property market

Some of you might have seen the Times today, in which the property supplement tries to convey my views about the housing market.

Under a front page banner “Why property is a good bet”, and with an inside title, “Safe as Houses?”, you might get the impression I am someone who thinks this is a good time to buy.

Although the contents of the interview itself is rather less prone to casual mis-interpretation, I wouldn’t want anyone to think I was one of those people who thought prices can only rise.

I try not to make predictions about house prices. It’s always a hostage to fortune, and anyway, my view of the current level of house prices is of no special value at all. However, my extreme care to avoid saying the words “I suspect house prices will probably fall”, should not be interpreted as meaning they will go up. No-one should buy on the expectation they can make continued exceptional returns. And they should probably be prepared to make some exceptional losses.

What you do get from the Times article is a more subtle reason for at least some people to buy houses, even if the market looks inflated by speculative froth. It is not to make a profit; it is to act as an insurance policy against the difficulties you might find yourself in, if by chance house prices go up even further.

Let me explain.

Suppose you know you want to own a home in 2010 for example, and you do not own one now. You have two choices: you can wait until 2010, or buy immediately.

If you wait and the market falls, you may well be able buy a house more cheaply than you’ll get it now. But if you wait and the market rises, you may be priced out or not get what you want. You face a risk – you are exposed to the vagaries of house price fluctuations.

However, if you buy now it’s different. You’ll pay a high price, but there’s no more house price uncertainty. You can stop worrying about house prices. You'll kick yourself if prices fall, but you will still have the same house you’ve bought, at the same price you paid.

And indeed, if you are upwardly mobile, and want a bigger house in 2015, you may still be someone who benefits from falling prices not rising ones, because if they go down, you may be able to trade up more cheaply than you would have done before.

I always like to say, I’d happily watch the value of my flat fall to 50p, if I could then trade up to live in Buckingham Palace for a tenner.

In general though, the argument is that owning a house is a hedge against house price fluctuations. And that’s not a bad reason to own a house. And a far better reason to have one right now as the market hits a high, than trying to make a killing on property investments.

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