Separating Fact from Fiction

We will first take a look at some headlines over the past 20 years and was it a great time or a bad time to invest in the  property market after this headline came out.

Property Headlines

Great Time to Invest – Daily Mail (2001)

House prices on average over the next 6 years after this was published (2001) they went up over 100% plus you would have been making on average 6% income therefore if you invested £200k at the time after 6 years it would have been worth £520k!


Another Great Time to Invest – Daily Mail (2002)

Roger Bootle, managing director of Capital Economics, was formerly chief economist at HSBC and one of the Bank of England. He said: “The message is clear. Houses are now so over-valued that a prolonged period of falling prices is on the cards”. This was published in 2002 and again over the next 5 years you would have been looking at growth of around 95%.


Andrew Oswald, Professor of Economics, Warwick University

This gent was a professor of economics who stated he predicted the last big crash 15 years previously, to his wife I may add, she didn’t believe him so he published a paper telling everyone to sell their house in 2002 and head into rented accomodation. The average house at the time £95,356. Anyone that listened to him would never have seen that price again. Even in the 08-09 property crash the average price only dipped to £149,079 so anyone buying back in then would have not only lost 3 years renting they would have had to pay another 60% for their property.

Ironically his latest paper released over the last month or so was ‘How to stay alive during COVID-19. I probably won’t be reading that one if honest.


Reuters – September 2007

This was published in 2007 by Reuters and the piece was from Simon Rubinshon who was at the time the chief economist at Reuters. He went on to say he expected house prices to be pretty flat over the next 15 months. His colleague Peter Damesick who was the head of property research at CB Richard Ellis said the chance of a fall in property prices were pretty small as there were no obvious triggers. We all know what happened next. The property market had the biggest crash it had seen in 20 years and fell by 16%.

Just out of curiosity I looked these guys both up. Peter Damesick has been out of a job since 2014 and Simon Rubinshon is still surprisingly chief economist at RICS. So of course I have hand picked them for obvious reasons and I have used them here half tongue in cheek. However they do make a good point and that is that genuinely regardless of what any of us say including myself we are just making assumptions. The bank of England stated that the property market would crash by 30% if we voted for Brexit, again that has not happened.

I want to make you aware that these negative reports that are published, we see constantly. Day in day out we have seen reports over the last 20 years of what the property market is going to fall by, and despite a blip in 2008-2009 we have seen it constantly move up. Do I think there will be another dip, of course I do, when one of the fundamentals changes, it’s as simple as that. We only have to look at history to see that the only time house prices have crashed is when one of the fundamentals have changed and I just don’t see that happening currently.

Let’s look at the latest headlines and try and find the wood through the trees..

One thing we can say for certain is that the amount of transactions in May are going to be dramatically hit. The reason I say in May not April is because there were many transactions that were agreed and still took place where solicitors just had to exchange/complete contracts in April. So now May is here, we are going to see the number of transactions fall as we did not have anyone viewing your typical residential homes in April which has a knock on effect in May/June for completions.

 

However, this does not mean a reduction in the house prices. The ONS have just released the following data:

  • UK average house prices increased by 2.1% over the year to March 2020, up from 2.0% in February 2020.
  • Average house prices increased over the year in England to £248k (2.2%), Wales to £162k (1.1%), Scotland to £152k (1.5%) and Northern Ireland to (3.8%)
  • London’s average house prices increased by 4.7% over the year to March 2020; this is the largest 12 month growth London has seen since 2016

So we have seen property predictions range from flat to 30% falls. Here are some of what agents/economists:

Knight Frank – 3%
Zoopla – Impossible to say
Savills – 5% nationally
Lloyds – 2.2% this year before bouncing back next year
Bank of England – Possible 30%

The bank of England is the most ridiculous of them all. Also irresponsible of them to say something like this. However they put statements out there like this for a reason. And that is because when it doesn’t happen they state that it was their policy that saved it.

In regards to long term this is what the predictions are:-

Knight Frank – 6% increase in 2021
Savills – 15% over the next few years
Nationwide – Sharp recovery after lockdown
RICS – Prices rebound to previous levels after 9 months

So all in all where does the above leave us. Well one thing that they all have in common is a trend that says a dip and then a swift recovery.

So I am guessing we have to put our money where our mouth is and give our prediction. If we get it right we will be playing this back in a year, if we get it wrong we will just delete the blog so there is no recording of it. I am joking of course!

One thing that the above predictions do not take into account and that is regional pricing. I feel that the above could be true when taking into account the suburbs. As we have always stated we stress that city centres are the best areas to buy. As soon as you head out property pricing becomes cheaper on average and a different type of clientele purchases there. You will often find that the individuals who could be most affected by the crisis will not be city centre dwellers. More than likely they will be either living or renting a cheaper house or even room outside of the city centre and here is where I expect to see the fall in house prices. Not in the areas we have been advising on over the last 8-9 years.

Also another point to look back on is the economist who predicted a fall in the market and for everyone to sell their houses and buy again. Well actually he makes a good point, albeit that he had terrible timing. If you do think the property market is going to fall by 15%+ why don’t you sell your own home and buy something bigger with the same money in 12 months. The reality is no one would do it just in case the house prices didn’t fall. And there is your answer, you won’t do it because house prices may increase and actually, if you were seriously considering buying a buy to let, falls should not affect you as you will be owning this property for 10 years on average therefore you ride out the dips.

So to summarise if you have money to invest and you have decided that the property market is where you are looking to invest then it is a case of diving in now and getting the best deal property. Over the medium to long term you will make money as property has always done.

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