The summer months has seen many reports of house prices easing upwards, after the big falls in 2008 and early 2009 maybe this is the turning point, may be this is the time for property buyers to rush in and pick up some bargain properties?
The facts are that it is still not clear where we are in the property market cycle, as of October 2009 it could be that we have seen the start of the move toward a stable property market with increasing prices, but can we be confident of this?
We have already blogged in many posts about the uncertainties that lie ahead of us and in particular rising unemployment and the need for the UK to cut public spending. This last point could be very significant. When Canada had a similar problem of unsustainable public spending they chose to slash the public sector payroll, if this happened in the UK the consequences could be dramatic.
It is estimated the employment in the public sector has grown by over 0.5 million since the late 1990s when Labour came into power. What if the Conservatives win the next election and reverse this, e.g. reduce employment in the public sector by 0.5 million? Even if Labour remained in power after the next election they may still have to make significant cuts in public sector employment.
The problem is no major political party will announce such cuts prior to being elected, otherwise they may lose too many votes. But, if there is a major cut in public sector employees it will mean a prolonged higher level of unemployment and this will impact the UK property market by holding back or depressing property prices.
No one knows for certain what the future will hold. If you are an investment property buyer then the safest bet is to buy on yield, e.g. a property that will make a rental profit on “real” market rents and “real” expected interest rates, e.g. at least 5 to 6% as the low rates of today will not last forever. Perhaps the most risky decision of any investment property buyer is to purchase today hoping to make a capital gain.
In summary, consider buying for investment cash flow, and not for capital gain.
