The old Stock Exchange advice of buying when the share price is low and selling when it's high is sound enough; as long as you know which stock to buy and sell and when the low point has arrived.
For the property investor the same advice is equally sound, but in a somewhat more predictable market. Much has been made of the difficulties faced by first time buyers and those who over-extended to service fixed rate loans that have now expired and must now face the real cost of borrowing. However, for property investors these are actually market indicators which, along with others, inform the timing of their decision to enter the property investment marketplace.
Unlike the Stock Exchange investor, property investors are looking at the equivalent of a few blue chip stocks that are influenced by some local and global factors. Like the home buyer, the property investor needs to be soundly financed and there have been some issues around the buy-to-let mortgage market that have made it difficult for some first-time investors to get started, however, there are signs that the time is now ripe for entering the market.
Lucy Denier wrote in the Sunday Times that "with house prices falling at the fastest rate since the 1930s, it may be 2011 before the market picks up." Andrew Weir, Central London area director for Foxtons, as saying "the market's not dropping, it's dropped." So what can the property investor deduce from these two pieces of information?
Most of us know that the UK property market has seen a constant doubling of house price value every 8 years or so since the end of World War II. Given an eight year cycle, and an undoubted peak in 2007, it is really no surprise that the recovery is predicted for 2011. The rises and falls in property value have always been led by Central London; so if the area director of one of the county's leading estate agents says that he has seen the bottom of the market, delaying investment would seem to be missing the ideal moment and ignoring the buy low and sell high advice.
Another major indicator of when to invest is interest rates, especially mortgage rates. This is not necessarily directly for the property investor, but is massively significant for the home buyer. The investor looks at interest rates as an indicator of when the market is likely to move. Lower, and hence more affordable rates will provide the much sought after access to the property market for the first time buyers. This in turn will release the chain mechanism that feeds confidence, and therefore price rises, to the rest of the housing marketplace. Confidence and movement will induce builders to build again and so the price rise cycle has been engaged. For the property investor it is important to either pre-empt or get onto the leading edge of this cycle.
Even thought he Bank of England maintained the base rate at 5%, HBOS reduced its rates. If analysts are suggesting that 0.25% is a likely cut before the end of the year with a prospective 1% reduction over the next year or so, then there can be little doubt that the market will respond. Again, the shrewd investor will not delay for long with this amount of evidence pointing at better times to come. Indeed, Moneyfacts, the financial website, indicates that the average 2 year fix is now 6.39% - this is the same as it was before the credit crunch hit lending.
But what of the international side of things? After all, wasn't it the USA sub prime market that led to the loss of confidence in securitised mortgages as security for inter bank loans.
This weekend the US Government announced that they would bail out Fannie Mae and Freddie Mac. The bailout will trigger one of the largest ever payments in the credit default swap market, analysts said on Monday. Under the US Government's takeover plan announced on Sunday, the US Treasury took $1 billion in preferred senior stock in each company, but its equity stake could reach as much as $100 billion in each. Freddie and Fannie, which serve a US Government mission to support housing, were put in a form of administration that allows their stock to keep trading but puts common shareholders last in line in any claims.
The global effect of this boost to the stability of the US housing market cannot be overestimated. European lending has suffered badly as a result of the loss of confidence, with major casualties like Northern Rock receiving a similar bail out to Freddie and Fannie, and major high street banks going to their shareholders with the begging bowl of a rights issue; and being soundly rebuffed at that. The value of property in some of the more developed areas of Spain, ie the Costas, has dropped quite dramatically, however, the indicators of recovery make them good investment targets whilst the less developed areas should see the continued rise in their value. But the Asian market was even further affected and so the takeover came as welcome news to officials in Asia, where central banks are some of the biggest holders of the agencies' bonds. They had plenty of reason to cheer as do all markets that suffered and can now see the light at the end of the tunnel.
The bottom line to all of these indicators seems to be that the low point is here and all the signs are that we are at the point of starting the road to recovery. If this is indeed the low point, it is the time for investors to enter the market and watch the growth in capital value that will be triggered by the recovery of the housing market both at home and abroad. Indecision is the thief of time, but in this case delay could cost more than just the time lost; the opportunity to make money from property investment could be lost with it.
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Written by: Susan Pedalino
About the author:Women In Spain
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