With uncertainty as consequences of Coronavirus, property prices are likely to fall. You have to buy at the right price, at the right time. Many are asking is it a good time to buy a property?
Like all markets, you have your highs and lows, don’t rely on one expert’s view, on how they think the market is going to behave, including mine.
Some have vested interest, in talking the market up, or for that matter down. Don’t forget to watch out for external factors too. Many will point to projections, and convince some, that the market is about to take off, and you may feel you need to buy right now. Amongst there reasoning to be bullish, it is rare pundits pay attention to what is happening globally.
Never disregard External Global Factors
Comparing the three; the great “depression” of 1929, the “crash” of the 1990s and the Lehman Brothers “correction” two of these were due to external factors. Many wonder where will Coronavirus leave our economy?
Coronavirus places us in a unique situation, all world economies take a hit at the same time, and many were struggling, even before Coronavirus came into play.
As an accidental landlord from the age of 18, I started growing my property portfolio. I went through the property crash of the 1990s lost £500,000 no I didn’t see it coming. This crash was due to the ERM.
Then we had Lehman brother’s banking crisis, I felt uncomfortable with the excesses of the economy generally and sold as much as I could. I can’t say I saw anything specific for my response, other than the excesses and how easy bankers were lending. When the banking crises came, I had never seen bankers in such panic.
Just after Lehman brothers, I went to the property auctions in London. I had previously gone to many property auctions before; I was no novice when it came to property auctions.
Again, I was surprised; it was an eye-opener, I sat in one of the auctions, and nearly all lots did not even make the guide price.
Guide prices set by the auction house, do not guide and are only set to lure would-be buyers to the auction hall. They are an unrealistic figure set. The guide price of a property is well below the minimum reserve the seller has set.
In this instance, as I have said above, most lots did not even make the guide price.
I bid for two lots. One of them the guide was £140,000, and I was the highest bidder at £90,000. The auction rang the bank who had repossessed the property. The bank immediately came back and said they could not accept £90,000, but they would take £100,000, which was £40,000 less than the guide, so I bought the property.
When I got the contracts, while I was still at the auction, I rang the agent, they told me they had a buyer for this property, and the buyer had a mortgage in place. The bank did not want to wait, and they put it in the auction.
This is an example of the utter panic that hit our banking sector. The other property I bought, it was a similar story, it had a buyer who had the mortgage in place, but the bank didn’t want to wait.
I sold it to the same buyers, without even picking the keys up, from the estate agent.
With Coronavirus, where do we stand regarding our economy and specifically our property market?
Our domestic situation is unstable, and the government has no idea how bad things are, the data must catch up with what is happening right now.
Generally, with world economies, one country goes up, and another one goes down, like a wave. What we have now is akin to all world economies in one boat. The boat is leaking and all the world economies are slowly sinking, together.
The situation with Coronavirus now is much more serious for the UK property market then what we experienced in 2008.
Banks alone cannot fix the problem
The solution will be for all countries to come together and fix the leak, but we remain at the mercy of Coronavirus. The longer we must adhere to social distancing, the deeper the potential financial crisis, not forgetting our incalculable personal losses of loved ones lost.
While we think things are rosy or things are not too bad, behind the scene, central banks support, what needs to be supported. However, central banks alone cannot get us out of this mess. Many world organisations have expressed a similar opinion.
However, the real economy is telling when the central banks step back and let the economy finds its level.
An excellent example would be when Nigel Lamont the Chancellor under our then prime minister John Major put interest rates up from 6.7% to 15% in one day. The Bank of England gave up, and the pound took a beating and lived to fight another day.
The major world economies are already in trouble; Coronavirus is devastation to life and the world economy. How quickly we can deal with Coronavirus will determine if we go into recession, or worse a worldwide depression.
Coronavirus is an exogenous shock to the economy, and the question is whether there are sufficient latent weaknesses for it to prey on. We think this unlikely. Instead, the locus of the problem lies outside the financial industry, in a real economy in which shops, services and business are being closed by state fiat, and the income of employees involved is collapsing.
In turn, that means the appropriate policy response cannot be limited to reducing interest rates or purchases of corporate or sovereign bonds on the open market, but should also encompass forbearance and targeted help and similar policies.
With the most vulnerable part of the financial system – the banks – in much better shape now than in 2008, we feel that this is not the real problem and that any solution focused primarily on the financial system would fail.
OECD – Report the world economy at risk
“The coronavirus continues to spread. As more countries impose quarantines and social distancing, the fear of contagion and income losses is increasing uncertainty around the world.
A new measure of economic uncertainty related to pandemics and other disease outbreaks finds that uncertainty around the coronavirus is exceptionally high and is much higher than in past outbreaks”.
United Nations on Coronavirus
The International Monetary Fund has reassessed the prospect for growth for 2020 and 2021, declaring that we have entered a recession – as bad as or worse than in 2009.
We must respond decisively, innovatively and together to suppress the spread of the virus and address the socio-economic devastation that COVID-19 is causing in all regions.
The magnitude of the response must match the scale of the crisis — large-scale, coordinated and comprehensive, with the country and international responses being guided by the World Health Organization”.
United Nations on Coronavirus report dated 1st of April states:
In hard-hit Italy and Spain, an estimated 27 per cent and 40 per cent of the population, respectively, do not have enough savings to allow themselves not to work for more than three months. Even if they are only living at the poverty line; and the number is an alarming 39 per cent for the OECD average.
In the United States, nearly 40 per cent of households cannot pay for a $400 unexpected expense, without borrowing or selling off some of their assets”.
US economy under Coronavirus – (Bloomberg)
“Another U.S.-Wide Housing Slump Is Coming. coronavirus pandemic will cause many cash-strapped Americans to sell their homes, flooding the market with excess supply”.
[bctt tweet=”What are the leading world organisations saying about COVID-19?” username=”Landlord_UK”]
Is it a good time to buy a house now?
Timing is important if you are thinking of buying a house. no one knows when we will be able to deal with Coronavirus. Even when we have dealt with the Coronavirus issue, the results of economic devastation will take time to filter in. Many wise property investors will wait at least 6 months before considering buying a property.
The advantages of buying a house during a recession.
Without a doubt, buying a house during a recession can be a fantastic opportunity. However, in my opinion, we could easily be looking at a worldwide depression.
Many landlords and property dealers are asking two excellent questions:
Is it a good time to buy a property now?
No!
When will the property market hit bottom?
It depends on several factors, crucially first we need to deal with the coronavirus and wait for businesses to start trading again and everyone to go back to work.
A raft of various data will be released in the following months nationally and internationally. Job losses and those who unable to service their mortgage all these human factors will take time to filter through. Then we can see the true devastation Coronavirus has caused to the UK Housing market.
I doubt any property investor will be looking to get back into the UK property market before six months
Source: British Landlord Association
Author: Marc Attwater
Date: 27th of April 2020
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