HOW WILL THE CURRENT ECONOMIC CRISIS AFFECT THE PROPERTY MARKET?

The storm of the Coronavirus pandemic may be passing but plenty of people are still feeling nervous in these, somewhat, uncertain times.

When Covid initially began to settle down for the first time, you may remember a feel-good atmosphere in the air. Pubs and restaurants were opening their doors, nightlife was resurrected and we were able to freely see our friends and families again without the pressure of government guidelines.

Now, that period of happiness seems to have come to an end and that’s because of everything going on. Talk of a recession, interest rates rising, inflation, cost of living and the property market.

THE CURRENT PROPERTY MARKET

In July, the Nationwide House Price Index reported that property prices were up in July, compared to June prices; this was only by 0.1%. If you’re reading that and thinking to yourself that it is very flat, month on month, you’d be spot on. Though if we look at the house prices over the last 12 months, they’re up 11% which is really strong. So, what does this tell us?

If we also take into account the rate of growth by region, we’re seeing that every region of the UK is slowing. But it is slowing from a high base rate, which means that the rate of growth is slowing, yet it’s still significantly higher than the 5-year average. So, is this a crash or more of a pause?

INTEREST RATES & INFLATION

These two terms seem to be on everyone’s minds at the moment, so how are they linked?

If we look at interest rates, there is a common assumption that interest rates increasing equals house prices falling – it’s logical but the data we are seeing may challenge this. So, with rates rising and house prices staying where they are, the question is: how much further will interest rates go?

This is where inflation comes in. The news is that the Bank Of England is prepared to do whatever it takes to tackle inflation; this is their priority over the economy. So, how do they tackle inflation? You guessed it, by raising interest rates.

RISK OF RECESSION

Could we be in a recession? Yes. How long will it last? It could be a while. What does this mean for the property market? Let’s discuss this.

Recession is, in essence, a knock-on effect that results in a shrunken economy for one reason or another. This leads to less being consumed, companies laying off workers as they don’t need to produce as much, these people then don’t have an income which leads to less spending and them being unable to pay their mortgage, this then leads to forced sellers, pushing the whole market down.

This may sound like pure dread, but when we look at whether or not this will be a deep recession, there may be some hope. We have to take into account some other factors, such as the labour market, which is strong at the moment, and then we notice that actually, the job market as a whole is rather hot right now in all industries.

So, will we feel the effects of this recession? Yes but perhaps not as bad as we first thought.

In conclusion, if you’re wondering if we are headed for a property crash then it doesn’t look like we are. In fact, right now looks to be a great time to buy and invest.