If you look back over the last couple of years there are many so-called “experts” who have been calling the top of the UK property market and predicting a crash. They use the term crash over and over again for affects but have you ever wondered, how do you define a property market crash? Ask the sceptics to define a property market crash and watch them struggle!
Broadly define a crash
If you dig deep you will realise that whether it is a stock market crash or a property market crash, these are social phenomenon which are heavily influenced by economic performance. While it is often easier to define a stock market crash, because they happen relatively quickly, the same reasoning can be used right across the board. So, we have a social phenomenon impacted by economic performance and when you mix in crowd behaviour this is when it can start to go wrong.
When one group decides it is time to sell their assets this can prompt another, which can prompt another and we begin to see the creation of a downward spiral. Does this bear any resemblance to the worldwide property market at the moment? Can you see any property markets which are struggling in this manner?
Crash is an emotive word
The term crash is a very emotive word whether used in terms of investment or everyday life. It is strange that while we all understand the term “crash” very few of us will ever have thought more deeply about what it means in the world of investment. Is a crash defined by a fall of 10%, 20% or 50%? The fact is there is no concise definition of how far an asset value needs to fall before it can be termed a “crash” which gives sceptics carte blanche to use the term to argue their case.
Are property markets really crashing?
If you take a step back, and look at for example the UK property market, are there signs of a crash? Are there external economic events which could prompt a change in investment strategies? Are there signs that the general public and investment community have had enough?
While there are obvious external economic events, such as the Brexit vote, there are no signs at all that the general public and the investment community are ready to ditch their UK property assets. Let’s not forget that debt is cheap at the moment, with base rates at historic lows, and there are potentially double-digit rental yields available on some properties. True, we have seen a trimming of prices in some of the more buoyant markets of recent times, such as London, but even then there is no sign of a crash just possibly a “correction”.
Savvy investors picking up stock
The UK property market has been defined for many years by a lack of supply and growing demand and with new build figures running well behind the curve this is likely to continue for some time to come. As a consequence, any short-term setback in the UK property market is likely to see some investors cherry picking stock for their long-term portfolios.
The UK may be about to go through a life changing period with regards to withdrawal from the European Union and freedom to trade around the world. However, many people seem to forget that the UK is central to the Commonwealth and as such has tentacles which reach every corner of the worldwide economy. The road ahead will be volatile in the short to medium term, there will be setbacks but many believe that the UK property market will remain something of a safe haven for many years to come. Indeed there are already signs that property investors are buying on weakness and looking to take advantage of market volatility.