Is the housing market crash finally here?
Paul Anthony Roberts
? Financial Adviser ? Expert in Protection Strategies ? 20+ Years of Property Investment Experience ? Helping Individuals and Businesses Build Financial Resilience
Where Are We in the Housing Market Cycle?
Success in property relies on keeping our finger on the pulse of the market. That pulse has largely been strong in recent years, but we’re entering a slightly more complex period and we need to keep abreast of developments.
Affected by both micro- and macro-economic issues, the housing market cycle is closely tied to the economy at large - at times influencing it and at times being influenced by it - but we must be careful to not see the two as synchronised or purely clones of each other. They’re far from an exact match and discerning which phase of the cycle we’re in is vital.
The Four Phases
The housing market cycle has four phases - recovery, expansion, hyper supply and recession - and identifying which one we find ourselves is key to informing how we act. Should we buy, hold or sell, and what should we buy, hold or sell? It all depends on the phase we’re in…
Recovery
Tricky to identify, we refer to recovery as the first phase, but it features, by definition, as a consequence of the fourth.
In the wake of a recession, there is an opportunity to pick up properties which are below general market value. This may be as a consequence of physical or financial distress - properties in question could be in disrepair or the owners may be facing pressing financial issues - and whilst this is unfortunate, it’s an inevitable consequence of a recession. People will turn this circumstance to their advantage.
Furthermore, the sale of these properties, though often regrettable, is important for the housing market’s recovery and its succeeding phase.
Expansion
As the housing market expands, it will reflect, and nourish, the green shoots in the general economy. As there is growth in employment there will be increased demand for property, with the public starting to regain confidence and be more open to long-term commitment such as house purchases.
领英推荐
Hyper Supply
As expansion increases, investors and developers react to meet demand, to a point where the supply begins to exceed what is required. This, coupled with a change in the economy of the country as a whole - leading to a fall-off in demand - provides another chance to buy at more attractive prices, but it takes courage when we consider what’s just around the corner.
Recession
When supply is in great surplus, this can be indicative, and a driver, of wider issues. Rents come under pressure, due to the surplus combined with other factors such as higher unemployment, and this multifaceted environment will contribute to an increase in repossessions.
The Contributory Factors
Throughout the housing market cycle, the usual suspects can be found driving the changes. Interest rate increases and decreases, the money supply across society, the unemployment rate and consumer confidence all have a part to play. How they interact with each other, and how well the government of the time predicts and reacts to these fluctuations via policy, will also contribute to the metamorphosis between phases.
The Current Phase
Last month, my article discussed why we shouldn’t panic if house prices fall. And we shouldn’t, but the mere fact that such a scenario is being discussed, supplemented with corroborating evidence, suggests that we are in the midst of the hyper-supply phase. Next up, logic would tell us, is recession.
While this eventuality may be inevitable, perhaps the inevitable, in this case, will be delayed.
We have, after all, a shortage of good properties and a shortfall in new homes being built, with this landscape being added to by the unprecedented amount of money which has been printed since 2020.
Despite this, interest rates are rising in an attempt to curb the cost-of-living crisis, which ironically both negatively impact upon consumer confidence. Added to this, the potential for the Bank of England withdrawing money from circulation - making obtaining credit more difficult - is looming, and the stage is set for a rise in our unemployment rates, hitting wage increases and further eroding consumer confidence.
History, and what we have learnt about housing market cycles, tells us we’re heading for recession. How we react now depends on our own circumstances, but we need to be prepared to seize opportunities when the cycle provides them.?