We are continually seeing headlines on property prices hitting record highs with pent up ‘covid-19 lockdown’ demand in addition to the stamp duty holiday rush.
Many are starting to question whether this is sustainable or will there be a crash as the bubble bursts.
We have a three pronged view on this:
The UK has not really felt the true affects of covid-19 lockdown yet. Many businesses are still being supported with government subsidies and furlough pay. In addition, the stamp duty holiday has artificially supported the property market.
2. Property Prices Adjusted For Inflation
We have taken a look back at property prices over the last 40+ years and adjusted for inflation. We can see that there was a huge boom in property prices in the mid 1980s followed by crash in the early 1990’s. The same happened in the run up to and then the aftermath of the credit crunch crisis of 2008 and 2009.
These were not huge crashes in actual monetary numbers but when adjusted for inflation, they do look like a crash.
Today, property prices are again pushing higher than they would normally be but wage inflation is not at the same level. We believe this means that property price increases will continue to increase in 2021 and early 2022 but we then fear for a correction. The bubble will come under pressure and leak or slowly deflate if not burst.
|Year||RPI Adjusted Average Price||% Change||Annual % change|
|Sources: House prices - Nationwide Property Index. Retail Prices Index - ONS.|
3. Mark Twain
That said, in the longer term and in the words of Mark Twain: “Buy land, they aren't making it anymore”. We are an island nation and long term the UK will recover from Brexit, will recover from Covid-19, trade deals will be signed and the UK is still perceived as a safe, stable haven. The population is increasing and demand for land and property will continue. Property is always a good hedge against inflation and we believe that inflation is the only way for governments to reduce covid-19 debts by devaluing it. We are still actively looking for property but may hold back on buying any more until later in 2022.