On death, taxes and property crashes…- Source- Independent.ie
Property prices in Ireland are due to fall again. It might not happen tomorrow or next year or even in five years (or it might) but it will happen.
A downturn will happen simply because it always does. The property cycle is organic. It works in never-ending circles and it always will – falling prices followed by rising prices with periods of stasis in between, every five to 12 years usually and it’s as inevitable as death and taxes.
Not only here in Ireland but everywhere else too, as a glance at the analysis of five world markets on Page 7 this week highlights. History shows the undulating property cycle has been running since the first homosapiens fought with moose bones over the cave with that sought-after stunning view.
You can tinker with the cycle and you can slow it and speed it up, but ultimately you can’t prevent the inevitable upturns and downturns. Because to be able to do so means having complete control over all the variables that influence it – employment, supply, credit, consumer sentiment, demographics, immigration, planning restriction – there are too many to count.
So why do a good many of us seem to expect otherwise? Why do we expect an entitlement to a market in which values gradually ratchet up forever in nice manageable little single digit jumps?
The sort of group expectation that a market shouldn’t fluctuate doesn’t seem to carry in any other sector. Public opinion doesn’t go jabberwocky when the stock market slides. They don’t blame the media that reports a downturn in equities as it rolls out for ‘talking down the market’. Neither do they blame the same media which covers the following upturn in stocks for talking the situation up.
So why do we keep looking for people to blame when the property market rises or falls? Through the boom years ‘group think’ wisdom widely conferred that anyone who stated property values could do anything other than keep rising was a heretic, because “it’s different this time”. We’re currently hearing that sort of guff in Australia – a country currently inflating one of the world’s biggest property bubbles.
Meanwhile, commentators who predicted each and every year from 1999 to 2007 that it would “all end in tears” are today held in reverence as all-knowing soothsayers. This is a bit like predicting in summertime that Christmas will come. Time itself is a cycle but even a banjaxed clock is correct twice a day. And to predict a property price downturn – I am doing that today (remember I was first) – is simply to predict the inevitable.But today people are running around pointing to those who pay increasing prices for properties and calling it “the return of the madness! Have we not learned anything?” they wail. They are objecting to measures to enable house building because they assert this as another facet of the “return to the madness”.
Prices are picking up after a 50pc wipeout. The real “madness” was more about Government and bank actions which postponed the inevitable by sticking a big oar into the natural cycle and by priming a heated market further. These actions which delayed the natural downturn – a fall in prices was coming in any case – simply increased the force and speed of the descent when it did come about.
Oars that jammed into that cycle included continuing Section 23 relief and easing stamp duty for buyers at the top end of the cycle. We’re now accentuating a natural upturn by artificially restricting home construction and clogging the supply pipeline. They’ve been sticking their oars into the cycle for years in the UK where the current London property bubble has resulted from a postponement of the full effects of the 2008 crash through vast amounts of quantitative easing and applying incentive to home buying. Sound familiar?
We are emotional about property prices because unlike stocks and shares, all of us need a home and the price of property and rental affects us all. However, that doesn’t change the fact that housing in a capitalist-oriented economy is a commercial commodity like gold, grain or cattle fodder, which loses and gains value constantly.
The best way to handle the property cycle is to accept it. To make judgements based on what you know – to buy, to sell, when and at what price – to make judgements on your level of risk (as you would a pension – high, medium or low) and then to accept the consequences of your own decision-making in the undulation of the never-ending cycle. The smart ones factor in a crash into their odds, or they accept when they gamble at high-risk levels and lose. The stupid ones look for someone to blame when they bet the farm on a two bedroom apartment in D4 and lose it.
It’s exactly like the stock market and a lot like betting at a racetrack. You decide how much you can spend, how much you want to spend, how much risk you want to apply. Then you make your bet and you take your chances. You bet big, then you can lose big. Bet small and you won’t win big.
Buying a property is a gamble. It always was and always will be. You win and lose in cycles and don’t let anyone tell you otherwise.