The mass media certainly have a major impact upon each and every investment market with real estate often a particular target. Despite the fact that many people are quite happy to put themselves forward as property experts, looking at the same economic picture, there is massive polarisation in thoughts, forecasts and expectations going forward. We often see some experts talking about a buoyant property market in a particular area of the world while sceptics constantly talk down the same market. So, why is talk of a property market downturn not all bad news?
When property markets are flying high many people will overextend their finances, have overinflated expectations and many will come crashing back down to earth when reality hits home. The fact that the UK property market, as one example, has performed admirably during recent challenging economic times is a prime example of how markets can be pushed to potentially unsustainable levels on the back of expectations.
You only need to look at the inflow of foreign investment into the UK property market to see how many investors have high hopes for the UK property market. This despite the fact that the UK economy, while still performing very well compared to its counterparts, is starting to struggle. We have interest rate issues, the forthcoming EU membership referendum not to mention a political situation which is becoming more volatile by the day. Is this a prime example of expectations seemingly ignoring the underlying prospects for the UK economy in the short term?
Making investors think again
If there is a growing chorus of concerns about the performance of an individual property market this can make investors think again. It is very easy to get swept along on the tide of optimism and hope for the future when in reality there may be other issues to consider. If some of the pessimism towards the UK property market does make investors think again then surely this must be a positive?
The fact is that if you believe a particular property market offers good value but the comments of some “experts” make you think again then simply look at your figures again. If you still believe that under an array of possible economic outcomes in the short, medium and longer term a particular market still offers good value then you would still go ahead with your investment. However, it may have dampened your expectations? It may have curbed your unbridled enthusiasm? Is this really such a bad thing?
There is statistical evidence which shows the vast majority of recessions are directly linked to a slowdown in property markets. If talk of a slowdown in real estate prices was to even slightly “deflate” the property bubble in some areas of the world there is no harm in this. It would be far better slowly deflating an overextended property market rather than allowing prices to be pushed to unsustainable levels and then crash.
So, while some may see talk of a pending real estate downturn over the next two years as extremely negative, if it only serves to deflate overvalued markets around the world is it really that bad?