PRAYING FOR A CRASH
This may seem like a strange perspective from somebody that has hundreds of thousands of pounds tied up with the property market.
However, there is a logic.
Any fallout in the property market would undoubtedly hit my personal wealth hard. However, real investors know that there is nothing like a crash in any market to through up some fantastic bargains for long-term investors.
I have ridden out several melt downs in the share market. I remember viewing the board of red ticker prices with falls of 10, 20, and 30% during black Wednesday in 1987. I also wince when I recall the fall out after the ‘dotcom’ boom and remember vividly the property crash of the early nineties. I particularly recall the article in the Economist at the time forecasting a decade of falling house prices. There are two great things about crashes:
1. they cream off the speculative ‘froth’ associated with an overheated market
2. and that markets always tend to over correct. So not only do prices fall back towards their long-term average they often fall below the long term trend making them cheap. This is because there is a glut of forced sellers as investors and particularly speculators flee the market in search of safe havens for their assets.
Do I think a crash will happen?
The next question is do I think a crash is ‘on the cards’ for the UK housing market?
The honest answer is nobody knows. Pick yourself a view on the direction of the housing market and you will be able to find an ‘expert’ who will back you up, whether this being that prices are going to crash, move sideways or, keep on booming.
My personal opinion for what it is worth is that unfortunately there won’t be a crash any time soon.
This is because the proportion of lenders income still is historically not high. Remember in 1990 it reached an incredible 26.7% of household income. It currently stands at 16.1%.
However, with interest rates rising this figure which controls affordability has been creeping up for the last 4 years. All we need is something that shakes the confidence in the market like a sudden jump in inflation and interest rates or a deterioration in the economic environment and suddenly the highly geared nature of the current market will be exposed in all its’ glory.
Without the self inflating effect of over confidence borne out of ever rising capital values, then the market could fall drastically and quickly from its current valuation levels.
Remember this advice
So I’m not prepared to call the end of this current bull market. All I will say is that I guarantee that if a crash does happen that all the press will be sounding the death of property investing and all but the serious investors will ‘run for the hills’.
This is when ‘real’ investors ignore the commentators, dig deep and ‘fill their boots’.
Remember to drag out this article ‘when’ the crash finally happens.
HAWKEYE A UNIQUE PERSPECTIVE ON PROPERTY INVESTMENT