Last Friday night, after a pretty busy week, I sat down on the sofa for some much needed R&R. I switched on the television with every intention of enjoying that day’s highlights from the Tour De France.
Instead, I ended up watching the Conservative leadership debate. Which in hindsight, was probably more testing than cycling the 202.5km from Rodez to Carcassonne.
Politics is something I generally try to steer clear of. But I was glued to the screen. Mostly due the inability of a group of presumably well educated and intelligent people to actually answer the question that had been asked.
Take for example, a pretty straight forward question posed by an audience member, an NHS doctor.
“What are you going to do about NHS waiting lists”
Pause.
“Well, firstly I just want to express my most sincere gratitude for the work that you and your colleagues have done throughout the pandemic. You’re all heroes”
Ok, nice sentiment. I think that we all feel that way.
“And secondly, I want to add that no one realises the importance to the British public of the NHS more than I do. After all, my father was a GP and my mother was a pharmacist”
At this point I realised the aim of the game was not to answer the question, but instead talk about something completely different. Something more aligned with the goal of winning a leadership race.
But I do understand, to an extent at least. Because answering difficult questions can be, well, difficult. Like when someone asks you how the property market is performing. Or even more challenging, what’s going to happen next.
Because in 2022, talking about the market (or writing a Q2 market update) can be hard.
Especially when everything seems so topsy turvy. Or for fans of Stranger Things, like living in The Upside Down.
For those of you who don’t know, The Upside Down is an alternate dimension, existing in parallel to the human world. An almost exact replica, but one that became frozen in time on November 6th, 1983.
Of course like today, the early 1980s were an inflationary period in Britain’s history. The year on year increase in prices peaked at 18% in 1980. Interest rates were a startling 17%.
Both fell, and by 1982 the figures stood at 8.6% and 9.6% respectively. But not before the UK had been through a recessionary period.
Back to 2022, the Bank of England’s target rate for inflation is 2%. But it’s currently running at 9.4%, and is expected to rise to 11% by October. And as in the ‘80s, the Bank’s response to this is to raise interest rates.
In December 2021 the base rate was 0.1%. Since then the Bank has raised rates five times. They now stand at 1.25%, the highest level since January 2009.
The suggestion from Andrew Bailey, the Governor of the Bank of England, is that August 4th could see another 0.5% added to this figure.
And yet against this backdrop, the property market (and London in particular), continues to perform well.
In the capital, the first six months of 2022 saw the sale of sixty-one properties priced at over £10m.
The total amount, which was 49% higher than the pre-pandemic average between 2017 and 2019, broke the billion pound barrier for only the second time in the last ten years.
Knight Frank have revised their 2022 house price forecast from 5% to 8%, with Prime Central London going from 3.5% to 4%, and the Prime Country House Market from 5.5% to 7%.
Rightmove’s demand metric is 26% higher than in June 2019 (albeit 7% down on last year's frenzied market)
So whether you look at the national picture, or the London centric one, the reading is the same.
As my children are fond of saying, but why? How is it possible that against a backdrop of economic and political uncertainty, that the residential property market continues to be so resilient?
Investec, the banking and wealth management firm, recently released some data from a poll of 110 of their private clients, whose net worth ranged between £15m and £250m.
Interestingly, more than three times as many of them believe that an opportunistic real estate strategy offers the best relative risk adjusted return today, versus three years ago.
And slightly more surprisingly, a large part of the UK’s appeal is apparently down to our stable economic and political environment. Yup, me neither.
Which might explain things from a pure investment perspective at least. But it’s not just that is it. What about the homeowners? The main drivers of the market.
I think that people’s appetite for uncertainty is more robust than it once was. When the financial crisis of 2008 hit, it was the UK’s first recession for 18 years.
Since then we’ve had countless general elections, a Brexit referendum and a global pandemic.
In the thirty odd years between 1979 and 2007 we had three Prime Ministers. We’re about to get our fifth in the fifteen years since.
In 2022 we have inflation which is out of control, rising mortgage rates and the first major European war since the breakup of the former Yugoslavia.
Not to mention the UK breaking the 40 degree temperature barrier for the first time in history.
Is our focus on property just that we need somewhere to live? Or is it the fact that we want to feel and touch what our money has bought us? Maybe it’s the feeling of status that a home can give us?
I think it’s all of that. Because in a world where very little is a given anymore, nothing seems more certain, or worthwhile, than a roof over your head.
Data provided by Prime Resi, Knight Frank, Savills, Investec & Rightmove
Property News
“Twenty one floors up.
Far reaching views, generous outside space and quiet solace from the restless energy of the streets below, embody feelings of privacy, luxury and convenience”
You can see my latest listing here.
Things I’ve been inspired by this week
This book. Because as someone said to me this week, this is the coldest summer of the rest of your life.
Or if you fancy something a little more lighthearted on the same topic, this is also pretty good.
