We are all well aware that there is a recession going on in a fairly sizeable section of the world at the moment. The things most people want to know is "when will it be over?"
Property on the whole has always been seen as one of the mainstays for judging a country's economy over the years, primarily because it has always been seen as a "safe haven" for most, being associated with numerous sayings and phrases (safe as houses being just one). Looking back historically, castles and the like were built to express wealth and power, generally from which to rule over one's peasants and defend from the wrath of unwanted invaders.
In more modern times, the construction industry has shown usually to be one of the first industries to be hit by a recession, and subsequently the last to recover.
The press the world over seem to be taking great joy in telling everyone just how much their house isn't worth these days, continually harping on about how much less one's property is worth now, compared to 5 minutes ago.
The newspapers then proceed to inform us how much less it will be worth in the next 20 years, all based upon a few sound-bites from an accountant/estate agent/auctioneer/passing halfwit, in a bid to fill the ever-expanding stream of media coverage the press now need to occupy to justify their existence.
To be honest, all the press seem to do at the moment is stretch things out they might vaguely know about, to get 10 minutes or a couple of pages out of a "story" by extrapolating the death out of the numbers, then calling it "news" only to contradict themselves 2 days later.
So what changed?
Whilst we have touched briefly on the evolution of investments before, it's not just the investments that have changed. The investors, media, promoters and the way we gain information have all changed too, as have the way money is made available and moves around the financial world. These days it's perfectly possible to analyse almost anything you want and correlate it to an entirely unrelated subject and call the result a statistic (in the good old days this was called an analogy).
There is of course the underlying fact that house prices across the developed world have gone down, and many are sat on negative equity. I am not about to suggest this is not the case, but more address the situation of why this is now, and when it will end. We have of course had recessions before (although not with the same levels of media coverage or on quite as wide a scale in modern times).
If it gets said enough times….
Go back just a few years and the term "Weapons of Mass Destruction" was thrust into our lives the world over. Certain world leaders had commented that they might exist in Iraq, the press got hold of it, and all of a sudden the whole world is off to hunt for them and everyone is on "Red Alert" with pending threats of attack directly from Iraq.
Skip forward a few years and many hours of news later, are there any WMD's to be found? No. Not even so much as a big stick with a trace of anthrax on it.
Meanwhile, for several years, the media has had most of the world on the edge of its seat thinking the next Hiroshima is about to happen, the world's stock markets have bounced up and down more than a child on a trampoline after a can of Red Bull and some of the world's major economies are printing cash in a bid to save themselves from financial evaporation.
This is not to say the property market demise is down to a misguided jolly in the desert playing hide and seek, far from it. Much of it could have been avoided and many lives need not have been lost if the press had simply kept their traps shut!
The point here is the recession (double dip or otherwise) will come to an end, and economic stability will return. It still won't all be sweetness and light, there has to be bad days in the markets and dips here and there, just not constantly moving down.
So when will the house price doom and gloom end?
If you think about it, it is pretty simple. The value of anything largely relys upon rumours and news. There is a well-known stock market investment phrase, "buy on rumour, sell on news". It isn't something to particularly live your life by, but should be kept in mind, and often holds the answers for the "what if" brigade.
The recession will end when the media stop suggesting that house prices the world over are at the forefront of everybody's minds, every minute of the day, and suggesting that everyone panic now for the foreseeable future about things that don't immediately affect them.
For example: if you are not selling your house in London right now, and have no plans to, and are not about to take out any loans, does it matter that the price of a mobile home in Alabama has fallen 0.2% in the past month? I doubt it.
With same said house in London (which happens to be your home that you have worked hard for and put down a 30% deposit on and are 5 years into your mortgage and have no intent on moving), what good to you personally is the "news" that, due to inflation, your house will be worth the princely sum of 3 brass farthings in 40 years time because of "stagflation" or some other newfangled term that a media hack thought up down the pub?
I’m not suggesting for an instant that the recession will end in a flash, simply because it won't. However, it will continue for far longer than necessary if the press gets their way by inducing panic as much as they do.
House prices can, do and are rising in certain areas the world over. The "throw a dart in property pages" mentality that the press is used to just doesn't work anymore. It is harder than it was, no question, and sitting on the side lines to "wait and see" does no-one any favours at all. Look, read, ask and research thoroughly. Beware of "anecdotal evidence", look for the facts, compare similar facts on a localized scale, not across a whole country or a continent. It still doesn't guarantee a profit from an investment, but until the next overinflated investment boom fad hits the media, we all just have to look a little harder at how we invest and what we invest into.
- Wednesday 08 September 2010