Jump to content
sacha k

Property cycle vs the economy

Recommended Posts

With Brexit, the bond yield curve inverting, the economic cycle being close to its historic peak and various other economic pundits claiming recession is a year or less away, is anyone concerned that it will interrupt our beloved 18 year property cycle? If so by how much? Is anyone buying as usual before Brexit?

Be gentle it’s my first post ;)

Share this post


Link to post
Share on other sites

Welcome aboard Sacha. 

I'm one of those who thinks we're close to reaching that 3-consecutive GDP-quarter slowdown. The manufacturing & construction sectors (PMI data) have become quite bearish over the last 16 months or so and not to mention that the latest GDP figures shrunk for the first time since 2012... 

With that said, if you're investing in property with a long-term outlook, recessions shouldn't matter because of a few reasons:
a) The UK has a house shortage issue - this will keep pressure on property prices, hence the long-term trend of property prices being on the up (alongside other factors) 
b) You'll be generating passive income from rent even if the property prices drop 3-5% (just ride it out and save this income)  

To touch on point 'b' a bit further, personally don't think it's worth waiting 6-months to 1-year just to wait for prices to drop for the sake of shaving off £3,000 or £4,000 on the asking price. Investment properties tend to be around the £80,000 - £120,000 price-bracket as investing in anything more expensive than that will eat-up your ROI due to the higher mortgage costs (assuming you are buying w/ a mortgage). So you'd be missing out on potential income (and not to mention the appreciated capital appreciation once things level out).  Because of the relatively low price-tag of investment properties, we won't see that much decrease in valuation as it's more affordable for first-time buyers and investors alike (supply vs. demand). 

However, unless you're in London or in other locations where properties tend to be priced at +£300k, you may have a special case to consider. This is because there is lower demand for properties of this price-bracket as affordability of deposit and mortgage is much lower. Once again, good ol' supply vs. demand. 
 

Good luck!

Rafa

 

 

 

Share this post


Link to post
Share on other sites

If you tried to time everything according to economic cycles you would never do anything! How many people have waited for the property market to crash so they can buy & just end up not buying?

There is a stock market investment maxim - its not timing the market but time in the market that counts. So.....don't overpay, don't overstretch, choose good properties at good prices and plan for the long term - that's my advice. :) 

Share this post


Link to post
Share on other sites

The biggest variable of all is Brexit, due to the unprecedented nature of it. So there is potential for that (and the other factors you mention) could knock us out of sync on the 18 year cycle...

But don't despair :)

As Rafa and Julia both cover, property is definitely a long game, so even if there is more than a wobble and it's a full on crash, in the long run it should all balance back out and push on further. 

Without going too political my personal thoughts on Brexit are that as unconventional as it sounds, it could actually cause a boost to the property market. I feel a lot of the downsides are already 'priced in' to the economy at the moment, I.E Brexit hasn't happened yet, but we are already seeing the effects based on the worry and uncertainty. So unless the streets turn into scenes of anarchy and looting, I think the general feeling will be that it's actually not too bad once it all settles down. That should cause a bump as confidence returns. In addition to this, with Boris in charge, like him or hate him he will do all he can to cover himself in glory (hopefully the country will benefit from it too!), so I wouldn't be surprised to see things like quantatitive easing with infrastructure investment for a few quick wins (and point scoring before an enevitible general election) , all of which could point to inflation and improved fundamentals for a lot of places which could help bump (or at least sustain) property prices. He's also already alluded to measures to stimulate the property market with the likes of stamp duty reform which should help the market in general so by default property investors. (by the way, I've never voted Conservative before, and voted remain, so the above are the complete opposite of my initial biases, maybe I'm being overly optimistic...but fingers crossed it all comes to fruition) 

Share this post


Link to post
Share on other sites

Hi Thank you all so much for your input, and PH for mentioning this thread via their newsletter. It’s nice to run these things by other people and get a fresh perspective. What a constructive place this is!

Share this post


Link to post
Share on other sites

HI Sacha

totally agree with the above - I have a property near London that I have on the market - hoping it will sell then I’ll buy 80-100k investment properties up north if I can get the mortgages in time, and keep them for long term. Reading forums a lot of people think it’s a wobble - personally I’m bracing for a crash but won’t stop me looking up north for yield! Be keen to hear what others are thinking 

Share this post


Link to post
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now

×