Property Market Insights - July 2022

In a stagnant or moderate growth market like we have had for the past decade, it has been necessary to negotiate money off deals in order to get a healthier amount of equity in a deal.  This remains a preoccupation of many investors in the industry and a cause of significant stress.  Why?

Over the past 18 months everything has changed, suddenly.  The new era of property investing is significantly impacted by the following:

1               Supply and Demand imbalances post Covid

2               Regional and Local wage inflation

3               National Inflation

4               Delayed activity

Despite the best effort of many in our industry to convince us otherwise, property price inflation is here for at least another 12 months.  My research company has demonstrated time and time again that data measurement trumps opinion and if you haven’t already, you need to start using data as part of your strategy to ensure you get the most out of this.  As good place to start is using our data service, Ultimate Property Dashboard.

Here’s how to use the current market conditions to increase your financial freedom using those 4 aforementioned points.

1.    SUPPLY AND DEMAND IMBALANCES

This situation is by far the greatest opportunity for property investors that we have observed in years.  We all know the market is buoyant, but there are varying levels of demand access the UK right now.  Added to this is a general fall in the number of listings.   I probably don’t need to tell you this, as most people understand that when demand and supply is out of balance with demand far higher than supply, it catalyses inflation or growth.  It is true that the whole UK property market is growing by just over 10% over the past 12 months, but some areas have grown by 20% or more.  This is a huge opportunity.  Finding and buying the properties in areas where this is happening is a recent phenomenon and will enable you to significantly drive your future profits from capital and cash flow growth.  It costs little to identify these areas and requires no effort on your part to enjoy the growth passively along with the financial and time freedoms it buys us.

Source: Ultimate Property Dashboard, local analysis.

In this chart, we can see the huge variance in demand in the Birmingham area for 2-bedroom properties.  This data is a critical part of the buying decision process, yet omitted by many investors.  Guess where it easier to get money off?!

2.    REGIONAL AND LOCAL WAGE INFLATION

The Covid pandemic was a huge reset is the labour market.  Work from home went from a rare perk to a commonplace practice for a huge swathe of employers.  Some realised the potential cost savings and continued to allow some home working or flexibility in office time.  This is played out now in the housing market.  Before we even consider individual wage inflation, many workers are moving away from once popular locations and buying further away from centralised offices.  Furthermore, some employers are also moving too.

We see this in data.  Some areas are seeing skilled workers on higher salaries move in, creating local wage inflation and, in turn, higher prices being offered on houses.  And some locations haven’t responded to this yet, with massive headroom for house price growth in the coming year.

Source: ONS

Added to this is the more universal wage inflation.  The UK jobs market is very, very tight.  For the first time since the 1970s, we have more vacancies than applicants.  This means workers can demand more money, and we are likely to see much more of this in the coming year.  Watch this space for Unions and workers forcing significant wage rises to keep apace with inflation.

This means that relative affordability of property improves, as the old multiple of household income comes down, facilitating further potential growth.  Remember that this is not going to be uniform across the UK, so get to work figuring out where and what will work best for you.

3.    NATIONAL INFLATION

The national situation with inflation is stark.  Whilst we often hear about current inflation, we often don’t get to hear about future inflation.  Right up to the end of this year, inflation is likely to rise further.  There are many measures for this, but a useful and accurate indicator is the producer price index.  Here we can see inflation of cost going into business, so see further advance what is likely to be produced and the cost impacts we will feel later on.

Source: ONS Produce Price Inflation Index April 2022

Then grim reality is that double digit inflation is likely to be an issue for some time, and interest rates rises and fiscal stimulus such as QE will end.  But despite these headwinds, capital appreciation and rent inflation will work in our favour to offset some of these challenges and even a potential recession. 

4.    DELAYED ACTIVITY

This fourth and final part of this jigsaw is once much harder to measure, delayed activity.  Although it many do not seem like it, our economy is still restarting.  This restart is also happening, at differing rates across Europe and the wider world.  Systems and infrastructure are flexing under the strains of this, especially where supply chains are run on just in time models.  They simply cannot come back to normal straight away, they take time.

But its not just the wider economy, in property too we have the impact of delayed activity.  It is hard to know the full impact yet, but bottlenecks in building, conveyancing and renovating properties have caused a lack of supply and will continue to do so.  Areas where this is acute are, interestingly, the areas where demand is highest, so having a process to find and act in high demand areas is again critical.  Regular tracking of demand is critical here, not just to ensure you achieve the maximum growth on investment but also to ensure you avoid areas where prices may stagnate or fall.

Taking all this into consideration, financial freedom in 2022 is much easier to achieve through smart investment than at any point I have measured since I began 10 years ago.  Remember to use data, especially data tracking changes in demand and property values.  Use forecast tools like Ultimate Property Dashboard to identify hotspots close to you and where you invest. And above all use this data to speed up your search and ensure you act before others.

All the very best,

John