Property crash coming? House prices drop -4.6% and likely more to come

Hans Chan -

What I’m Watching

The Klitschko/Fury Face-to-Face interview was meant to be a promotion for their second fight but ended up being one of the highest-profile videos documenting someone struggling with depression in a very open way. No one knew it at the time, but he was clearly crying for help here.

Proves that if the heavyweight champion of the world can struggle with it, it can happen to anyone. Boxing fans will know the story following this is worthy of Hollywood. Fury came back to the pinnacle of the sport immediately after his struggles with depression having to cut from 400lbs! To then fight Wilder who had the highest knockout percentage in the history of the sport, received the most brutal knockdown in his career in the final round where he was knocked out for a few seconds, and miraculously got back up to end the fight on a high.

Resource of the week

I just filed a money court claim against a company yesterday via the gov website. I just wanted to say it’s a very quick and straightforward process, nowhere near as scary or as expensive as people think.

It’s still very early days, I’ll most likely do a proper writeup in next week’s newsletter. Most companies are fairly reasonable in the case of disputes. Still, every so often it’s inevitable that you come across people who are basically bullies who think they can get away with things.

It’s the first time I filed one myself but I have helped a friend through one in the past. If you feel like you’re in the right, and reasonable communication has broken down, I 100% urge you to do it. The vast majority of the time companies will do whatever they can to settle out of court because it costs them a lot of money. It gives you leverage and for them to take you seriously.

In my case, I received a call an hour after I filed it and they did a 180, offering a refund which is all I initially wanted! But now I’ve incurred extra costs. Anyway, more on this to come.

Quote

From Tim Ferriss’ blog

“To learn to be always in a state of meditation means never to let your vital energy wane. You would never allow it to do so if it were certain that you were to die tomorrow. It wanes because you forget about death. Grit your teeth, fix your gaze, and observe death at this moment. You have to feel it so strongly that it seems as if it’s attacking you. Fearless energy comes from this. At this moment, death is right before your eyes. It’s not something you can afford to neglect.” ​

Suzuki Shōsan (1579–1655)

Thoughts

So it feels like a lot of property investors are staying quite vigilant at the moment to market moves. We’ve already seen landlords selling up over the last 5 years or so at the fastest rate in a very long time. The rise in rates and recent anti-landlord reforms won’t particularly help matters.

In terms of what I think about BTL going forward? While the overall data show falls, which is likely to continue over the short term, it is very stratified. In that affordability will be extremely stretched in the South East and London, I just don’t see how people are making a single let BTL property work in London at the current rates. If they have a 75% LTV mortgage I’d be surprised if they are cashflowing positively. On the other hand, properties in the north will be much more resilient.

No one knows where rates exactly will be, but some predict that we’ll settle at around the 4.5% mark long term. I think look at the current economy it’s a case of ‘be greedy when others are fearful’ type scenario, as Warren Buffet said. Yes, rates are high but it’s the same for everyone, once things settle I do see property prices continue to push on with the long-term shortage. Rental demand is through the roof at the moment which has been exacerbated by the exiting of landlords which should go some way to offset the mortgage costs once things settle.

Usually, the best time to buy is when sentiment is weak, and it is definitely that now which provides a window of opportunity. Of course, this does assume you’re looking with a long-term mindset because no one knows what will happen exactly in the next 12 months or so.

While house prices have fallen, according to the Halifax report, income growth has been pretty strong and the house price to income ratio has actually fallen from 5.8 last year to 5.1, improving affordability. So it’s a very different scenario to 2008, the affordability stress tests have worked and once things settle I expect house prices to continue to grow.

My general mindset is to continue acquiring. What do you think? Is it time to leave and it’s not worth the hassle? Let me know, and hit reply, I read all responses!

Hans