It's really a hard call to actually RECOMMEND to anyone that now might be a good time to buy. Really depends (1) on the market you're considering and (2) what price level you're looking to get into. And though it hurts my overall sales business, I am almost feeling better about recommending renting for the following reasons.
Using the Owning versus Renting School of Thought
In many cases, annual rents (not including service charges and utilities) are typically 2.5% to 3% of the purchase price while mortgage rates are 4 to 5%, so it could cost almost twice as much to borrow the money as it does to borrow the house. So then why buy when it's more advantageous to rent - at least until prices come down to an affordable level?
Let's face it; renting is a cash business that proves what people can really pay based on their salary, not how much they can borrow. Salaries and rents in and around Prague prove definitively that high property prices have to come down more before sales will get back to "normal".
If you're considering buying either as an investment or to occupy, here's something I found that I think is a very good way to judge whether or not owning works for you (or if you're better off renting).
annual rent / purchase price = 3% means do not buy
annual rent / purchase price = 6% means borderline
annual rent / purchase price = 9% means ok to buy
So let's use a typical new development in Prague to test this. Average prices are hovering around 55,000 CZK per meter. Using a 60 sq meter flat as an example and a rent of 13,500 per month we arrive at a Rent/Price indicator of 4.5%. A luxury flat in a somewhat desirable location fares worse. 120 square meters, priced at 80,000 CZK per meter commands only about 30,000 CZK per month. That equates to an indicator of 3.7%. Hardly encouraging when thinking about buying.
The same 60 sq meter flat priced at 45,000 per meter and renting for even slightly less will bring you closer to the 6% borderline indicating that this flat could be worthwhile owning.
The same 60 sq meter flat priced at 45,000 per meter and renting for even slightly less will bring you closer to the 6% borderline indicating that this flat could be worthwhile owning.
Two more things to consider if you're thinking about buying. First is that there are a lot of empty new flats out there. Developers cannot compete with existing (second hand) sales and will have to reduce prices because they must sell to keep their businesses going. They need the money now. They simply have too many empty flats that they cannot sell at current prices.
Second, in my opinion, when interest rates go up, prices will come down. Those with cash in hand will win out as they will have leverage with the developers who will need that cash.
