Call it optimism, but in these uncertain times, it is what homeowners need. UK news site The Guardian reports residential property prices will collapse this year but they are likely to quickly rebound in 2021.
Property Value Fall and Rise
A 3% fall this year is the likely result with a rebound by as much as 5% in 2021. If this forecast happens, homeowners with one less thing to worry about will be relieved.
There are winners and losers during unfavourable economic times, i.e. a recession or worst still a depression. Cashed up property investors, however, know this is the time they can add to their portfolios, with an additional rental home or more depending on how deep their pockets are for deposits and how forthcoming lenders are to stump up with home loans.
Lockdown And Recession
In a recession, many businesses fail to survive. For example, estate agencies and other property sector service providers from valuers to moving companies may not survive the recession bought on by the COVID-19 lockdown.
Even with some investors bagging a bargain rental property, their service is dependent on property sales activity, and when it’s low, there’s less demand for their service.
Brexit has made the past three years tough going in many sectors with the economy failing to get into positive growth territory. Property sales have been stagnant, but with Brexit certainty, buyers were returning, albeit shortlived. Now the UK is experiencing an “outright housing market freeze”.
USA, Australia, New Zealand
Other regions like the USA, Australia and New Zealand are experiencing similar trading restrictions. The difference is they have had a few years of housing market stability before COVID-19. Highly functional and well-organised businesses in the housing sector should have funds they can draw on during harsh trading conditions with working capital reserves to fund their growth when the economy moves forward and into recovery. Just what ‘business, as usual, ’ will look like however is anyone’s guess!
Right now there is another group fearing the worst and that’s Landlords who are duly worried rent income will dry up from tenants who are on furlough or have lost their jobs.
Most landlords are not financially independent; they are also employees sceptical to being let go and thus out of work. Therefore without the rental income, they can not make the monthly loan repayments nor pay other expenses associated with the rental property, including rates, and insurance.
Mortgage holidays for stressed homeowners affected by COVID-19 restrictions are welcomed. However, the concern among Landlords is three or six months of mortgage holiday won’t be nearly long enough. What happens in six months if tenants are still unemployed and can not pay rent? There is a moratorium on evictions in Australia and New Zealand for six months but what happens thereafter is anyone’s guess!
Sell Or Hold?
Discussion on forums like PropertyTalk reveals how rental property owners are working through their options. Do they sell up as soon as they can or try and ride the recession out and hope the recovery is quick and tenants are back to work? Some investors say they will sell, while many want to hang on for as long as they can.
Imagine if stressed landlords en masse decide enough is enough and list their properties for sale at a time when houses prices have tanked!
There is never a good time to sell when the property cycle is in a slump. Only the desperate landlords and homeowners who have run out of options do it. Ideally, you’d never sell your home as a ‘firesale’, as by doing so you are often forced to forego the equity that’s accumulated in it over the years of ownership.
During a real estate market slump or bust, there is one group ready to enjoy a buying spree, and that’s cashed-up property investors. Timing in real estate is similar to that required as a stock trader, i.e. buy when the price is low and sell when the price is high.
On a positive note, in the USA, as investors pull out of the stock market, they will park their money in real estate as it is thought to be more stable than share trading. Local US investors may be the saviours of the housing market and stabilise property prices fingers cross this may also happen elsewhere before there’s a buying frenzy at rock bottom prices.