189: UK and US investment update - crash or no crash?
03-24-2008
For the last ten years, 
onto the housing ladder in the hope of waiting for prices to drop – then picking up a bargain. But unfortunately it has not happened. For all those property investors, it can be a bit unnerving to here a chorus of nay Sayers calling for a crash – it catches headlines.
What property investors cannot afford to be is either smug or arrogant – these two traits normally lead to investors reducing their returns or worse still, going out of business. But one has to take a balanced view then “go with what you personally believe in”. Don’t listen to all those doubting Thomas’s out there. When was the last time you heard a family or friend actually encouraged you to purchase a property? – it’s very uncommon. Normally we get “I wouldn’t do that, it’s too risky” – or “I think you might fail at that” or “the market’s bound to crash, so you’ll loose a fortune if you invest now – I wouldn’t do it if I were you!”. Well, you are not them and they are not you. You are an individual private property investor – and you need to follow your own intuition.
The best investors invest when everyone is saying no – and sell when everyone is saying buy! Look at Warren Buffet. He must have a confidence barometer in his office – when it’s cold he buys, when its hot he holds or sells.
So what about the
We thought we would try and help by listing the positive aspects, then listing the negative aspects, then you can make up your own mind.
Positive
- Reducing unemployment
- Increasing employment
- Increasing population
- Shortage of building – reduced building in 2008
- Supply demand imbalance (50,000-80,000 homes shortfall per year)
- Land shortage
- Environmental constraints (sewage, electricity, roads, floods)
- Planning back-log and time taken and costs for consent
- GDP remains a healthy 2% (3+% in
- Reducing interest rates
- British aspiration for owning own home
- Home Information Packs discourage people from moving causing supply shortage
- High stamp duty discourages people from moving causing supply shortage
- Many people who move now let their homes out and buy another home, casing further supply shortages
- Buy to let investors show no signs of selling up
- New 18% capital gains tax (instead of 40%) increases incentives to purchase property for investors
- Rents rising by 10% per annum – rental property market remains firm
Negative
- Price to earnings high at ca. 10 (long term average 6)
- Inflation remains an issue – interest rates could rise if oil price exceed $125/bbl
- Credit crunch reduces borrowing for people with poor credit rating
- Average wage earner finds it hard to borrow enough to buy a house
As GDP drops, interest rates should also drop which should stimulate property prices. Inflation remains an issue, but high oil prices have so far not impacted the economy as much as most economists had thought it would. Meanwhile, unemployment is not so far rising. Employment remains strong. In
For anyone wanting to buy their first property, it’s a risky time to buy at present. For those with a portfolio of 5 properties and gearing of <70%, it’s probably worth being on the look out. For the larger portfolio investor with over 20 properties, is probably a good time to pick up some bargains!
Interesting to note a not very widely publicized report by Rightmove that showed property asking prices rising a healthy 0.8% in the last month to 24th March. This was after a 3.5% increase in the month to 20th February. Time for properties to be sold also dropped. Hardly looks like a house price crash. We also 
don’t see a hugely strong link between the
Also bear in mind in the
Anyway, we aren’t trying to talk the market up or down, we frankly hope the market keeps rising, but if it doesn’t we’re not going to loose any sleep either. It will be a good buying opportunity if prices dip and motivated sellers need some buyers to help take these properties off their hands. It’s difficult to find bargains at the moment, so a bit of market turmoil makes it easier to negotiate an attractive deal.
US Market
We see the 
r the next 8 months. First of all a few positives and negatives:
Positive
- Affordability in many areas still good
- Booming population in
- Land shortages in urban areas
- Interest rates dropping dramatically – impact to be felt after Sept 2008
- Tax cheques of $500-$2000 due to arrive Sept 2008
- Interest rate resetting ends ca. Sept 2008
- Exports remain strong stimulated by the declining dollar
Negative
- Quarterly GDP probably ca. 0.5% (annualized)
- Unemployment rising slightly
- Forecloses have tripled from low base a year ago (now ca. 1% of all properties)
- Building boom hang-over (condos etc)
- Credit crunch making it more difficult to get borrowing and equity release
- Real estate price dropping in most areas – 5-10% in a year
- Confidence low
- High oil prices taking their toll on confidence and spare income
Overall, we see continued negative emotion, dropping dollar and sliding real estate prices until Sept 2008, whence we expect a strong recovery. Yes, there may be a short mild recession, but the shot in the arm of massively lower interest rates, tax giveaway cheques and the end of higher resetting of mortgages in Sept 2008 should see the economy picking up sharply end 2008. Meanw
hile, exports have been very strong which has helped jobs creation, so overall, we expect 2009 to be a good year for real estate in the
And for anyone that does not think we are objective, please refer back to all our previous Special Report and house price predictions dating from early 2004. If you can see where we were wrong, please email us on enquries@propertyinvesting.net. We have a strong track record of predicted trends – this is one of our specialties – and we like to share this with all our visitors with the overall aim of improving your property investment returns. Have yourself some good investing.
PropertyInvesting.net team