Safe as Houses

 Speculation is alive and well within the UK housing market, despite the “buy-to-let” sector taking a hit last year by way of tax-increases. With cash deposit returns residing at near 200-year lows and investors fearful of stock-market volatility, one can understand the attraction of residential property as a “safe investment.” In fact, the attraction of the UK housing stock in the private rented sector has grown to £1.29 trillion.

However, before you rush out to join the growing crowd, the term “as safe as houses,” is something of a misnomer.

As can be witnessed within a chart of average UK house prices, using the Nationwide data due to it having the longest history, note a close correlation between it and the FTSE All-Share Stock-Index. A glance at this 65-year period of history shows two periods of sizeable corrections for UK house prices, the early 1990s -35% experience and the 22% fall during the 2007 financial crisis :

16-feb-2017

Added for good measure is the lower chart in blue, which is a “rate of change” momentum indicator, here as an annualised rate of return, noting that the rate-of-descent has steepened post crisis. This matters if debt has been used to purchase the property and in the UK’s case 31% of the private rented sector is subject to a buy-to-let mortgage.

 And it particularly matters IF the interest-rate cycle has turned, which for the UK it has:

16-feb-2017-2

Forget the posturing of the Bank of England and the sheople who actually believe that it has any real control over interest rates. Who do you know who borrows at 0.25% pa, the Bank of England’s “base-rate.” You and most other mere mortals, when borrowing for UK residential property purchase, are dependent on “market-rates,” and in particular the 10-year government borrowing rate, albeit that you may find a discounted initial period.

As can be seen within second chart, the 10-year interest rate has rocketed by 150% over the past 6-months and is “testing” the red-dashed trend line and the 38.2% Fibonacci re-tracement level, a typical test level. If and when this is breeched, which is likely, the interest rate is headed for the 2% mark and possibly far higher thereafter.

So, less volatile than stocks residential property may be, but “safe” from loss, NO!

If you have found this overview of interest you may wish to read the most recent “Investment Markets Overview,” which also includes comment with supporting charts for the Luxury end of Manhattan and the world’s most expensive housing market, Hong Kong.

You can access details here under Limited Editions

 

 

 

 

 

 

 

 

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