The slump that never happened

The slump that never happened

Going back as far as 10 years ago you’ll probably, at some point, find dire predictions of housing market catastrophe. A crash, a slump, a drip, the wording will be irrelevant; there’s something bad coming and there’s nothing you can do about it.

As with more or less anything these days, you can usually safely bet that the author has something of an agenda to push, and if that author has a vested interest in lower house prices, then all the more expected.

We can at least cut some slack to people that were predicting dire consequences following the COVID-19 pandemic, given that we’re currently experiencing the biggest economic shock the world has experienced since the Second World War.

America saw something in the region of 35% knocked off it’s GDP in Quarter 2 of 2020, whilst the UK lost something in the region of 25%, the two worst results since the world was fighting the worst war in history.

Nonetheless, The Bank of England’s chief economist Andy Haldane remains convinced that the UK, and probably by extension the US, are set for a V-shaped recovery in the coming months into 2021.

Doom and gloom is never far off, however, and if we go back to literally a month ago we can read about a ‘property crisis‘, or how about a ‘sharp coronavirus fall’ later in the year‘? That was written on 29th July.

It’s not just recently that people have been discussing this, however. Almost as quickly as lockdown was announced people were talking about the potential for an epic price crash, talking about the potential for 40% falls, or even worse.

It became something of a trend back in April and May, as attention began to turn to how estate agents would re-open, and whether the demand would return to the industry following the strict restrictions we’d been living under.

Would people have the confidence to spend? Would they be too scared to even leave their house, let alone sell it?

A non-existent crash

As with almost all other predictions of doom, it simply never arrived. Of course, none of us can ever predict the future with absolute accuracy, but given the GDP drop figures given above, it’s difficult to see how much worse it could reasonably get.

The US, to be fair, is currently experiencing a peak much worse than the original in New York, and there could well be ramifications from there that, as yet, remain unseen.

Secondary to that, we’ve yet to see what the implications of Rishi Sunak’s furlough scheme ending in October will be. So far, unemployment figures have been less than ideal, but haven’t had anybody hitting the panic alarm just yet. That could always change, and unemployed people don’t make reliable mortgage repayments.

But what about the housing market then, and property investment as whole?

According to Property Wire, and the most recent data ‘The annual rate of UK house price growth edged up to 2.7% in June, after rising 0.2% on the month according to the latest data by Zoopla.

Buyer demand has seen strong growth since housing markets reopened, however the number of new homes being listed has not experienced the same increases. This is creating an imbalance of low supply and high demand and is contributing to the house price growth seen in Zoopla’s data.’

Why things are strong

Something doesn’t feel right maybe? Well, the answer is as potentially complex as it is probably simple.

Occam’s razor principle simply states that of any given set of explanations for an event occurring, the simplest one is most likely the correct one, and if that’s the case then let’s just say that people always need houses, and as a rule of thumb, housing appreciates in price over any ten year period you care to analyse over the last 50.

The lockdown, and the subsequent economic downturn, are completely different to the circumstances of 2008 in that the market fundamentals haven’t changed. People want housing, and people want to sell.

Tenants, buyers and sellers all remain in plentiful supply, and regardless of market forces, barring something extreme, that doesn’t look set to change.

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