Will The London Property Market Crash This Year?

Is now a good time to buy?

This is one of the questions that I am asked most frequently.

As economists have proven with impeccable precision, it is impossible to forecast with any degree of certainty what will happen in any market. In fact the more certain an economist is about something the more likely that it is that the opposite will happen.

If you need any proof, you only need to look at the price of oil. No-one predicted a fall as severe as we have seen over the last few months.

Or when asked by a colleague “What do you think will happen in the markets this year?” a friend of mine at a major bank responded: “I don’t have a clue and nor do you. And as long as everyone else remains clueless, we’ll stay in a job!”

Of course, nothing is certain. One can only look at probabilities. So in 2007 I was warning clients that the market had overheated and there could be trouble ahead. Some took my advice and picked up bargains in 2009. Others agreed with me but decided to buy anyway as their home was more important than any short term market swings.

Now it may seem odd that someone would buy despite agreeing with my forecast. To some it seems odd that someone would happily buy a home despite being fairly certain that they could buy a similar property at a cheaper price in 12-18 months’ time.

But if you are never a forced seller then the market swings are far less important.

That is not to say one wants to buy at the top of the market. Obviously it would be best to buy when prices are more favourable but as we do not know the future, this is rather hard to get right. The picture is even more blurred at the moment because of two major points:

  1. The printing of counterfeit money Quantitative Easing by central banks
  2. The “Globalisation of London”

Point one makes it very hard to judge what anything is worth when money is being magicked out of thin air in huge sums. What is this money actually worth? Hence the extraordinary gyrations in the FX markets.

Meanwhile London has arguably become the pre-eminent city in the world. A lot of global wealth is now aimed at London. Think of the Qataris recent agreement to buy Canary Wharf as just one of many examples. Consequently using house price to earnings ratios is not a sensible way to gauge valuations as it doesn’t take into account the huge global impact.

But prices are high, I hear you say. I agree. As you know I do think that there are certain parts of the market which are highly speculative, especially the high density new build developments which are being bought by overseas’ speculators.

However, as my father keeps reminding me: if you had told him in 1975 that the house he was buying for £30k would now be worth c. £4m then he would have assumed you were mad. Just because prices seem high doesn’t mean that they are actually that high or that there is not room for even greater price increases.

For example, what do you think will happen if the Conservatives are re-elected (even in a coalition)? Prices would bounce back very swiftly as the discount generated by the uncertainty of the election vanishes. If you are trying to time the market, you would kick yourself for not buying now.

Conversely, if Labour win and bring in a punitive Mansion tax then prices are likely to fall in the immediate aftermath and you will kick yourself if you buy now.

However, history has shown over a long timeframe (300+ years), that house prices or more accurately land values in the UK capture the economic gains from infrastructure and subsequent economic improvements. This has happened on a bizarrely repetitive 18 year cycle which has only been interrupted by the two World Wars.

So unless you anticipate the demise of London then prices are likely to continue to rise. I can guarantee you that there will be another bust in house prices, but I expect this to be a number of years away.

I am not suggesting that you should rush out and buy a property immediately. There are many properties that are still massively overvalued despite price reductions. However, there are some great opportunities.

If you would like to receive regular updates on the market simply register your interest by emailing veronika@mercuryhomesearch.com.

Good luck with your search for a property in London.

Best regards,