Probably the most underused sentence in Property, in Business, and in fact, life.
We have such an issue with it don’t we?
Perhaps it is because we (me) love being right so much, it is hard to say when we are wrong.
I was hoping I would see lots of people these last few weeks coming out and saying this, but they haven’t.
They have changed their tact, without so much of a suggestion that they called it wrong?
They are now all saying, “No, no, no – it will happen, just not yet….” (no shit Sherlock, that it will happen at some point…..)
So what is “it”?
The Property Market Crash.
The much fabled, often exaggerated, “end of the world”, “biblical”, “great depression” that scared people shout about loudly so that others can be scared with them.
Roll back to March.
Covid19 hits, the country goes into lockdown. Property Educators in the main did one of two things.
A) They went quiet – “if you don’t know what to say, say nothing” seemed to be their approach of choice. Many had to sort their own house out, as maybe they weren’t built on the solid foundations they preach so aggressively about. But they sat, and waited.
B) They predicted the impending doom for the market. ” You can’t just stop the economy for 3 months”, “Store your cash, it’s about to be buying season”, ” Cash is king” and every Warren Buffet quote they could thing of (used in completely the wrong context, at completely the wrong time). I saw one party telling people to not pay any liabilities whatsoever, save all the cash (because they were about to not pay theirs).
At first I sat there bewildered.
Are these people experienced?
Are they seeing something that I am not?
Or are they scared/unexperienced/found out/over reacting / with ulterior motives?
I never once considered the Property Market would fall over immediately.
For a number of reasons, many of them the very most basic of economics and Property Investment, that anyone active in the market should be completely aware of.
1) Supply and demand – such a basic concept. We have now, for something like 18 months had record lows of Property available, and increasing buyer interest. In any market when you have too little of something, that more people want, prices increase. Anyone seen the Brexit impact on property prices we were promised yet? No, me neither. Why? Supply and Demand.
2) Pent up demand – add to the above, you lock people in a house for a period of time, they either realise they don’t like the house, or they don’t like each other. Demand increases even more. Even less chance of a price drop.
3) We went into this with no finance issue whatsoever – today in 2020 we have almost 10,000 mortgage products available. In 2008 we had almost 3000. 300% more finance options for home buyers and property investors. I was worried about lending, lenders have the habit of behaving like most people (Turkeys voting for Xmas) and pre-empting (thus creating) a massive issue.
4) People could not spend money. Yes they were on 80% of the wage, but they were probably spending considerably less than any reduction in wage. I usually go through a tank of petrol in 10 days. Last week I refuelled for the first time in 4 months. People have paid off a historical record amount of consumer debt in the UK
£7.4 BILLION!!!!!! since lockdown began. £5bn in credit cards and £2.4bn in Loans. Many have actually been better off.
OF COURSE THERE WILL BE CASUALTIES AND OF COURSE IT WILL GET WORSE, BUT THE QUESTION IS WHAT DO WE NEED TO LOOK OUT FOR, HOW DO WE NEED TO REACT, AND WILL IT ACTUALLY GET AS “BAD” AS “THEY” PREDICT (IT VERY RARELY DOES)
On the recession side. That was obvious. We told you in April that was already happening, and when it was announced in August (2 months behind the times) all the doomsayers said “I told you so,”
A recession is a fall in GDP (spending) for 2 successive quarters. As nobody was spending anywhere near the norm between March and June, this was as predictable as night following day. It made a great headline but really wasn’t news.
I am going to make a bold prediction for you (not really) – we are already in recovery. Because spend is recovering from its low point………see, it’s THAT easy, but not really THAT relevant.
So what do we need to watch out for:
- Supply and demand – keep following this. How many completions are happening, how quickly and at what prices. Do we still have more buyers than properties, and are they able to buy…..which brings us to…..
- Finance – are lenders still lending. Can we finance the massive demand in the market? I can tell you, in dealing with some of the biggest lenders in the country on a daily basis, that they SH*T themselves too……….but their rhetoric is changing, and very quickly. They have seen the market has weathered this (and better) and don’t want to miss the party…..let’s see what happens next.
- Unemployment – this is a biggy. I mean not many people are mentioning that we went into this with record lows of an unemployment (3.9%), in fact the lowest levels in over 40 years. That doesn’t sell fear, or newspapers I guess. People are losing jobs, many more will, but the NET employment position will be key. We could “afford” (for want of a better word) to lose some jobs, because we were in a historic position of strength. In 2014 the unemployment was more than double that of 2020, I don’t even remember it being “a thing” – or mentioned extensively. How bad this gets will be key though.
- A second wave / lockdown – in my opinion this would be an absolute catastrophe, on every level. Every market (apart from masks and hand sanitiser salespeople, internet shopping etc) would feel it on an unparalleled level. Quite simply, for the economy and the countries mindset, this cannot happen.
- Government legislation change. This has already happened. Stamp duty changes to stimulate the market have worked incredibly well, adding to the already huge demand. The housing market is responsible for around 15% of UK GDP – I think the government expects this to increase and I would not be surprised if it was soon 1/5 of the countries economy. Many of the jobs that will be lost at entry level in hospitality etc, I expect to move into construction to push further the “Build, Build, Build” mantra of this existing government. I won’t lie, I like it!!
- The emerging opportunists in the “wealth creation” world. Now they have realised this isn’t the end of the world, and that there is a huge opportunity to sale against peoples fear, they will be back. They will tell you that you need another way, and that you cannot rely on job safety for life. Of course they are right, but that doesn’t mean their way is.
Look for people who have been consistent in their outlook.
Look for people who sell facts not dreams.
Avoid “get rich quick” because it very rarely happens.
Check their experience and activity levels.
But most importantly – be clear on their motives.
As mentioned already, lots of people are still sharing fear. Fear sells. Whether its a lease options “specialist” telling you to get ready with your lease option knowledge as repossessions are about to kick off, or someone telling you “financial freedom awaits” for the mere cost of £25k – just remember the above.
Look for the facts.
And remember, a broken clock is right twice a day, but it isn’t too much use most of the time.
I am seeing so many people in our game missing the Summer, whilst they tell you Winter is coming.
My dad told me a Property Market crash was coming for 10 years, and in 2008 he said “I told you so” – after a decade of missed opportunities.
Those who are really in the game, stay in the game at all times. They know that there is a strategy for every market and not a market for every strategy. They look for what is happening on the front line (not just on FB or in the papers). They adapt.
Be those people.
That is my plan.