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Being a first time buyer won't be too bad. Being a first time buyer with a heavy loan burden will be...

Consider buying a small apartment for 100.000 euros, all cash. Then the market falls by 20 %, and you sell your apartment for 80.000 and buy a bigger apartment, which used to cost 200.000 but now goes for 160.000. This means you'll have to borrow 80.000 and end up with a 50 % solidity, which is perfectly fine.

Now, imagine there would be no crash. Then you'd have to borrow 100.000 euros instead of 80.000 to get that bigger apartment when you sell your old apartment.

Furthermore, as long as you are debt free in your old small apartment and are not looking at moving to a bigger place, the market value does not matter a fig to you. It's your home, and it'll produce that service just as well no matter if the market booms or goes bust. The only way you lose is if you move to a smaller place, but given that you are a first time buyer who already lives in a small place, why would you?

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Sun Feb 13th, 2011 at 11:47:04 AM EST
[ Parent ]
Indeed, this reasoning works if you can buy cash.

In practice, most people will have to take a 15, 20 or 25 years mortgage and if they have to sell at 20% less than you bought, they'll discover the joys of negative equity.

Then again, if you have several hundred grands available, you might imagine a better use for your money than overpriced real estate.

by Bernard (bernard) on Tue Feb 15th, 2011 at 04:12:44 PM EST
[ Parent ]

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