Should you buy property in the UK after an economic shock?
Without a doubt, the vote for Brexit was an economic shock. Many experts are predicting doom and gloom. Some are saying that the country will enter a full-blown recession. As I discussed in my last article property investment blog ‘After Brexit, what should property investors do?' Even the opinions of property experts are divided between boom and bust and effective investment research is key.
In truth, after every economic shock property expert opinions have been divided. We can all remember how property prices trended after the 2007/8 Global Financial Crisis and the Great Recession that followed. It took six years for UK house prices to recover their pre-crisis levels. But what happened in the aftermath of other economic shocks in recent times may surprise those now wondering whether a residential property investment is a wise decision.
In this article, I look at the most notable economic shocks since the 1973 Oil Crisis and see how they turned out for investors who bit the bullet and ignored the doom and gloom forecasts. The outcomes may surprise you as much as they did the housing market experts at the time.
The 1973 Oil Crisis
In October 1973, Arab petroleum exporting countries instigated an oil embargo. They had been infuriated by America’s involvement in the Yom Kippur War. By the time they lifted the embargo in March 1974, the oil price had quadrupled, and global growth had stalled. Here in the UK, workers were restricted in the hours they worked. Electricity blackouts were a regular occurrence. Candle manufacturers did rather well. So did investors in residential property:
In the two years after the Oil Crisis began, the UK average house price rose from £9,767 to £11,288 – or by 15.5%.
The 1979 Oil Crisis
Again, starting in the Middle East, the so-called 2nd Oil Crisis kicked off when the Shah of Iran was kicked out. The Iranian Revolution saw oil output from Iran all but cease. World oil output fell by 4%. The UK was particularly badly affected – it sourced 40% of its oil from Iran. The shock was a contributor to the UK’s recession of 1980 to 1981. This didn’t stop residential property investment doing well:
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Despite all these problems, house prices rose from an average of £20,485 to an average of £25,580 – or 24.9% – in just over two years.
The 1987 Stock Market Crash
In October 1987, stock markets around the world fell out of bed. On Black Monday (October 19th , 1987), the American stock market as measured by the Dow Jones fell 22.1%. Falls in the UK were similar. Within a month, stock markets around the world had fallen by up to 42%. Big money bankers in London lost their jobs. Bonuses were cut or eliminated. The global economy slipped into recession within two to three years.
Property investment in the UK, after a very brief falter, saw prices rise, and residential property investment was a silver lining on a black cloud:
From an average price of £44,434 in the third quarter of 1987, the average price of a UK house rose to £62,782 just two years later – a rise of 41.3%.
The 1992 ERM Crisis
This is, perhaps, the closest comparison to today’s Brexit shock. The UK exited the ERM system (the forerunner of the euro) under a cloud. The Bank of England had failed to protect a rapidly weakening pound on the foreign exchange markets. Property prices in the UK dipped a little, then shot up before falling again. Then they resumed their rise:
Little more than two years after the ERM Crisis scooped all the headlines, the average UK property price had increased from £50,168 to £52,114 – a rise of 3.8%
The Dotcom Bubble of 2000
As the new millennium approached, there were rumours that all the computers in the world would stop working. This was because of the change of dates from the 1900s to 2000s. IT technicians was paid thousands to stay at their desks on New Year’s Eve. Tech stocks around the word had ballooned in price. When the bubble burst in early 2000, the shock waves rippled out around the globe. Investment bankers lost their jobs. Speculators lost their life savings. Property prices in the UK carried on rising:
The average UK property price first dipped and then rose strongly. From the 2nd quarter of 2000 through to the 2nd quarter of 2002, the average house price rose from £81,202 to £103,501 – or 27.5%.
What now for property investment Post-Brexit?
Of course, the past is no predictor of the future. However, these potted histories of recent economic and financial crises might just show that, as Warren Buffett puts it, “the best time to buy is when all others are fearful”. Do your investment research to find somewhere with strong property fundamentals, looking for investment opportunities in ‘everyperson’ property, not forgeting your due diligence.
You may find that property investment now might just be one of the best investments you’ve ever made.
Meanwhile, read our article which uncovers the truth about retirement and investment property and discover what financial advisors are scared you’ll find out.
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