So what is going to happen next in the property market, and how does this affect us as property investors?
We’re living in strange times because, despite lock-down and the most dramatic fall in GDP (probably) ever, the housing market is going through a boom period. Nationwide have just reported (Sept 2020) house process in the UK are the highest they have ever been.
Perhaps this is because of pent-up demand from lock-down? I don’t really see that, to be honest.
Or perhaps it’s because people are moving out of cities to the suburbs, because lock-down made them realise just how uncomfortable city living can be if you can’t go outside (easily)?
Or perhaps it because of the Stamp Duty holiday? Or maybe it’s a reflection of the fact that interest rates are at record lows? Of course, interest rates are at record lows but that, in itself, doesn’t mean a bank will lend you a mortgage.
Whatever the reason, it’s hard to see any ‘fundamentals’ driving and supporting the market.
To me, it all seems a little irrational. But markets are irrational, so that’s not a surprise.
My view is, when furlough finishes, and the unemployment rate inevitably (and sadly) increases, the property market will fall. By how much?
And over what time period? Well, how can we know?
I wish I knew and I could tell you, but at the moment live has a habit of surprising us, and the old ‘normal’ no longer applies.
We have no idea what the response of the Bank of England or the Government will be. And that will be crucial. Will they step in to save the market? After all, the property market is an important driver of the economy as a whole, hence the Stamp Duty holiday.
So you’ll see guesses of -5 (minus five) all the way to -20 (or more) but they are just guesses.
This is uncharted territory.
Whatever happens, I think a fall in prices is inevitable. I think we could be looking at atleast 1 year of decline, maybe two.
And it won’t be spread evenly and consistently across the country. Some areas will do better, and other areas will do worse.
Common sense suggests the higher value areas like London will see larger falls (relatively) and the lower value area areas will see smaller (relative) falls. After all, the North East, as an example, has only just got back to pre-2007 prices after the last crash, and many consider property in areas like this to he ‘cheap’ by most measures (including ‘the fundamentals’).
So will areas like that hold their values?
As I say, what happens will depend on what the Government and the Bank of England do, and we have no way of second guessing that. If they intervene, and on a big scale, then my worst case scenario won’t happen.
But, what ever happens, I won’t be buying during this mini property boom (unless I find a deal that is just so good I have to buy).
If you want to add to your buy to let portfolio, I would suggest holding your nerve and waiting. Just for a few months. Perhaps even a year.
Of course, the risk is, things might not go the way I see things and you end up missing out. Isn’t this the age old dilemma?
Here’s to Successful Property investing
(ex) Chartered Surveyor, author and property investor
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