We are all aware that a property is one of the most important investments that you can ever make. Whether intended as a long-term asset or simply as an upgrade to your current living conditions, this market attracts millions of buyers each and ever year. However, we also need to keep in mind that making the right decision requires a good deal of clarity and foresight. Anyone who recalls the financial crash of 2008 and the subsequent housing crisis is well aware that things do not always go as planned. Much like other marketplaces, the housing market tends to follow specific cycles and we are currently in the midst of what can only be called the cusp of a bearish time period. This is why 2020 could very well represent one of the worst times to buy in recent history, particularly in the UK property market.
Let us take a look at some of the fundamental principles behind this observation so that realistic conclusions can be drawn.
A Look at the Current State of Play
Never buy when it is high. This maxim has existed within the investment sector for countless decades and it is just as true in present times. According to a report release by Halifax in January 2020, the average price for a home in the United Kingdom stood at a staggering £238,963 pounds. Would you ever become involved with an investment that is at an all-time high only for its value to drop off in the not-so-distant future? Of course not. This is one of the major reasons why a growing number of experts believe that the property bubble is set to burst sooner as opposed to later. Those who wish to avert risk should therefore think about holding off for the time being.
The Role of Economic Growth
Another worrisome trend which seems to go against the previous observation is that domestic economic growth is decidedly stagnant across the majority of the western world and the same holds true for the United Kingdom. This is due to several factors including:
- The ever-present shadow of the Brexit.
- Relatively low levels of consumer confidence.
- The recent COVID-19 pandemic (more on this later).
- Flagging domestic productivity.
We need to keep in mind that one of the main drivers of property values can be seen in GDP. So, it is only reasonable to assume that slower domestic growth will inevitably impact the cost of a home. To put it simply, the current housing market is overpriced when compared to other fiscal indicators within the United Kingdom. Those who buy now (at the wrong price) risk purchasing an asset that is worth more on paper than its actual price, and they know it.
Following Buyer Behaviour
We now need to take into account the very real impact of human sentiment and buyer behaviours. After all, the consumer base is what will ultimately determine whether a property is quickly snapped up or remains within no-man’s land for months on end. This is when buyer confidence comes into play. It is already a foregone conclusion that any investor with even a modicum of experience will not become involved with an asset if its future is questionable. The same holds true in regards to the current state of play within the housing market. While there is no doubt that certain sales will occur more out of necessity, the fact of the matter is that these to tend to represent the exception as opposed to the rule.
Furthermore, the average age of a first-time home buyer in the United Kingdom is 32 years. Why is this factor important and relevant to the UK property market? We need to keep in mind that their decision-making processes are much more dictated by online research and virtual property portals when compared to previous generations. Additionally, younger generations often view a property as an investment opportunity as opposed to a home that they will live in for the remainder of their lives. In other words, they are just as concerned about future prices as they are about present values. It is therefore no surprise that these very same individuals have become somewhat concerned about recent events. This brings us to what can only be called the proverbial elephant in the room.
The Dynamics of Unpredictable Times
Assuming that this article had been written in the first few weeks of January, the notion of a global pandemic all but ablating life as we know it would have been considered to be nothing more than the stuff of fiction. However, the recent coronavirus outbreak has caught everyone (including real estate experts) by surprise. The main takeaway point here is that actions such as stay-at-home restrictions and the closure of countless businesses (for the time being) has thrown the global economy into turmoil. This naturally translates directly into the UK property market and housing sector. There are several concerns which are coming to light:
- When will individuals be allowed to return to work?
- How will the COVID-19 outbreak impact housing prices?
- Will the current lockdown measures delay a potential sale for months to come?
- Once restrictions begin to ease, how bad of a hit will the domestic economy have taken?
Much like a sailing vessel encountering an unavoidable storm upon the horizon, now is the time to batten down the hatches as opposed to foundering upon the open seas. It is therefore completely understandable why now might not be the best time to consider a property investment.
However, we need to finally mention a maxim that was highlighted at the beginning of this article. The property markets are cyclical in nature. Uncertainly and stagnation will inevitably be replaced by a sense of optimism and a more bullish climate. This is why patience or significant negotiation skills with motivated sellers are arguably the best virtues to possess at the moment. Until things become clearer, it is likely that prudence will supersede a more proactive attitude. As the age-old expression goes, this too shall pass.
Make sure to seek expert advice if you are entering into the UK property market or expanding your current portfolio.
As an expat expert, I am on hand to help with all of the above and more.
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Mike Coady is an award-winning financial expert and a well-known leader in the financial industry.
In addition, Mike is a well known Independent Financial Adviser and Money Coach. Qualified to UK Financial Conduct Authority (FCA) standards, a member of the Chartered Insurance Institute, a Fellow of the Institute of Sales Management (FISM), a Fellow of the Institute of Directors (FIoD) and featured as a highly qualified Financial Adviser in Which Financial Adviser.