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Waiting for the right time to buy property?

August 8, 2022

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Article Summary

Where to Invest
  • The best model to predict a crash is the 18-year property cycle, and according to that data we won’t see a market correction until 2026.

  • During the financial crash, the average UK house price dropped by 15% from £184k to £153k. This is a fairly big drop, but just 8 years earlier in 2000 the average UK house price was £84k.

  • There are just 664 homes available to rent in Manchester currently, compared to 1,628 this time last year; and 2,351 this time in 2020. 

Waiting for the right time to buy is often a roadblock for budding investors and landlords on entering the property market. When someone says they are waiting for the right time they are assuming two things;

  1. That there is a right time to buy
  2. That they will know when this “right time” is. 

Both points are something that no one can know or predict. However, what we can know and predict is property investment will always be the most durable secure investment, if you pick the right options in key areas. Investors also need to understand that time is the most valuable asset in property. 

The best time to buy property would actually be 20 years ago, the second-best time to buy is today. Investors need to think in decades, not months or years. If you keep on waiting for the market to fall, or for market conditions to change, for example, waiting for interest rates to change you are missing out on taking that first step which is the most important part. You’re wasting time and missing out on growth, and rental income. Even those who bought the day before the financial crash are in a better position now than if they hadn’t bought (provided they were not over leveraged). The important part was that they bought and weren’t stuck in analysis paralysis waiting for the perfect option or the perfect market conditions. 

We can dive into some actual numbers on supply and demand constraints but it’s also worth focusing on the fact that the best model to predict a crash is the 18-year property cycle, according to that data we won’t see a market correction until 2026. People want to invest after a crash because that’s when prices are lowest, and nobody wants to buy a property right before prices drop. But is that really when prices are at their lowest?  

If we take a look back at the financial crash, the average UK house price dropped by 15% from £184k to £153k. This is a fairly big drop, but just 8 years earlier in 2000 the average UK house price was £84k. If you’d brought any time before May 2005, you’d have bought the average house for less than what the prices crashed to in 2008. Reasserting that time is the most powerful asset in property, and unlike money, time is not something we are getting back once it’s gone. A crash always gets wide coverage on the news, in the papers, it will be front and centre in the zeitgeist. But as a result of how much publicity crashes get; we tend to over-estimate just how dramatically house prices actually fall by. If we’re two years from from a crash, you’d almost always be better off buying now than waiting for a crash. 

Of course, this is using UK averages. Different areas ride out crashes in different ways. Over-inflated/over-saturated areas can be hit much harder, but this is the reason you have to be selective, keep a close eye on supply and demand constraints. Supply and demand are the great equalisers. That’s exactly why we have a lettings team, which gives us an invaluable insight into the supply and demand of specific areas, and certain types of property. We also look at the increase in population in relation to amount of construction happening and focus on not only cities or areas, but the specific supply and demand constraints, of specific areas within those cities. Some areas will recover quicker than others. And in the UK, big cities generally react differently to other parts of the country. 

A big driver behind people ‘waiting for a crash’ is that they’ve got interested in property ‘too late’. There’s a huge increase in media attention during the boom phase when prices start to go wild, you’ll see an influx of ‘property porn’ TV programmes. This means people suddenly feel pressure to invest because it feels like there’s lots of money to be made, bearing in mind we are not in this position yet, the big sign of the end of the boom phase is when you start to see lending requirements get extremely lax, but this is not the case, the criteria is still strict. Furthermore, prices increase faster than people can save, deals get snapped up quickly and it’s very hard to jump in as the average person. As a result of this, people who feel excluded believe that a correction feels inevitable, or even wanted. It’s a very emotional decision for some people, but you must discard emotions in property investment, discard them like a used tissue.   

The thing is a crash isn’t the magic bullet that people think it will be, crashes almost never drop prices to ‘affordable’ and they have a lot of implications that actually make buying more difficult for the majority. You really shouldn’t be waiting for this, you wait for a crash, you might well be waiting even longer than you wanted. You want an asset during the crash, a crash only affects property owners who must sell, if you’ve just bought and a crash happens, why do you care? You should not be planning to sell anytime soon, and prices will go back up. The important part is you have an asset that is making money, and rents are likely staying the same if not increasing. When the economy is struggling you need multiple sources of income and they need to be set up before the crash, do not just rely solely on the income from your job, or even just one or two properties. 

The point is you need to think differently, the media will spread fear, uncertainty, and doubt, that is essentially their job. You need to buy property that ticks the right boxes, what are these boxes? You’re best jumping on the phone with us, and we can talk through them because your boxes might be slightly different than someone else’s depending on your goals and experience. Briefly though you want to focus on projects that are future proofed, ‘long-ish’ lease lengths, good leasehold terms, good amenities, strong fundamentals such as transport links, but most importantly of all an area with low supply compared to demand, both in terms of properties for purchase but also for rent.

Look at Manchester for example, the population is increasing at 10 times the rate they can build, we can discuss what is fuelling this demand, it’s coming from loads of different sectors however that is a different article all together. If we look at the city centre, there are only 11,000 properties expected to be completed over the next 5 years, but over the next 8 years the population is expected to increase by 70,000. Yes, 70,000 vs 11,000 properties, just in the city centre. The key headlines from various reports revealed that lettings numbers fell due to the ongoing residential supply crisis, while rental values rose to record levels.

There are just 664 homes available to rent in Manchester currently, compared to 1,628 this time last year; and 2,351 this time in 2020.  This lack of supply is going to be felt for some time, think decades. This is also just the tip of the iceberg when it comes to both the lack and supply and general investment case for Manchester, which granted isn’t the only area we work in, far from it. However it is the one where the stars are aligning in a way that will shock some investors, and annoy others who had the opportunity to get in but didn’t. We have multiple mind blowing facts that people aren’t clocking onto about Manchester. 

 

Does property have to crash?  

No.. it doesn’t, but not a great deal has changed since 2008. Mortgage criteria is a bit stricter and harder to get than in the 2000’s, but there’s still a lack of supply of news home being built, a clearly defined deficit. Property prices always outpace inflation and although we don’t know if we will be buying iPhones in 10 years, we know that everyone will still need a home. 

I touched on the 18-year property cycle above and while this is a product of economic market forces it’s also partially driven by human nature. No matter how closely we look at the data and take it in, we’re all susceptible to the fear of missing out when prices seem to be going higher and higher, and we all think we can time the market. Even if we’re personally disciplined enough not to fall into the traps of the cycle, enough other people moving in the same direction will over inflate prices. This leads to a bubble which must be followed by a crash. 

One of the reasons the 18-year property cycle is 18 years is because that’s roughly how long until the new first-time buyers come of age and can buy. Obviously, they don’t have front-line experience of a crash, therefore it doesn’t factor into their decision. The average age of a first-time buyer in the UK is 33, when the crash happened, being 15, they were likely more worried about who wasn’t replying to them on MSN messenger, Myspace or Bebo than what the property market was doing. 

What this means is even if, let’s say, Manchester caught up with the number of homes that were needed we’d still struggle to control a boom/crash property cycle because there’s a constant wave of new buyers who don’t know to look out for the signs of a housing market bubble. 

This article could be much longer, I could touch on the 18-property cycle in more depth, I could discuss the ‘winners curse’ which happens just before the crash and the signs to look for, however if you are going to take anything away from this collection of words it would be to discard any notion of timing the market. Ask yourself, Do I want to invest in property? If the answer is yes, the solution is simple. Just invest in property. Take that first step and do whatever you need to do to make it happen as quick as you can. 

Yes, it can be overwhelming, especially if looking at cities or areas you are not from however agencies like us can help you do that, we are on the ground, we can lift the curtain and give you an insider perspective. This can & will help you make the right decision, but more importantly avoid the wrong one!

 

What is property investment?

Put simply, property investment is property purchased with the intention of generating financial returns for its buyer. These returns could be in the form of rental income through buy-to-let properties, house price growth through the future sale of the property or both. Property investments can be owned by individuals or organisations and can be short, long or medium term.

 

Find out more

To learn more about buy to lets in Manchester or about property investments anywhere else in the lucrative north west, contact North Property Group now.

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