I want to bring your attention to a relatively new debate which is raising its ugly head in the property industry… will the property market crash in 2025? Are we headed toward the next Property Cycle?
I know that it seems like we only just got over the fallout from 2007-08 and here we are again discussing the next potential disaster; the next Property Cycle…
Yet it seems like it’s something that’s justified. The National Association of Estate Agents haven’t downplayed their
estimation that house prices are set to rise by 50% up until 2025, so that means that the average house price is going to rise to roughly £418,000. And, as we discussed last week, there seems to be no let-up in supply, but awful failings in demand, and Brexit doesn’t seem to be doing anything to reversing this, so house price rises are understandable. What’s all this about a Property Cycle?
Twin this with the 18 year property cycle. This is the theory that there are usually 14 years of rising prices followed by 4 years of recession across the broader economy. The reason for this? Well, wages just can’t keep up with house prices and neither to a certain extent can rents. Alongside this is also the side effect of increase in interest rates. The result is that the housing market just becomes unsustainable and the recession, in theory, brings everything back to an equilibrium.
This brings us nicely onto why 2025?
Technically, Britain came out of recession in January 2010 when the economy grew by 0.1% in the last 3 months of 2009. However, 2010 was a slow growth year and things started to pick up from 2011-12 onward. Using the 18-year cycle, 14 years of growth ends around 2025…
It’s not an exact science, but you can imagine why economists and property professionals are beginning to look to the future. Already the market is in a precarious position, in my opinion London has been teetering on the edge of falling over the edge of a cliff for a while… it’s already unaffordable in comparison to wages and I can’t see that gap being reduced any time soon. Yet, inevitably the rest of the country will catch up at some point and when it does, that will cause chaos.
Robin Goodchild of LaSalle Investment Management is pioneering the conversation about a 2025 crash. His biggest warning is that the pattern shown from 2014-15 is very similar to what happened in the previous cycle and therefore we need to brace ourselves for what is coming.
So, whilst we are on this roller coaster ride being cranked up very slowly to the top of the hill, waiting blindly for that drop, we will continue to hold our breaths in anticipation. This is something to keep your eyes open to… it’s time to prepare your property portfolio to weather any storm, don’t ignore this because times are good right now! If you need help with organising your portfolio to make it recession proof then contact me, I’m your girl to sort this so email me firstname.lastname@example.org or visit me here
What are your thoughts on the potential crash? Do you believe it’s coming soon?
Source: Barras, R. (2009) ‘Building Cycles – Growth & Instability’ Wiley-Blackwell, West Sussex, UK. P 80