8
Apr
Market Correction
These days there appears to be a ‘market correction’.
This applies largely to the financial services sector, which is
undoubtedly long overdue a shake up and radical reform. However,
this issue does not park itself firmly at the door of the financial
services authority, it is much more widespread and crosses over
into a host of commercial disciplines. This certainly applies to
the property market. I am now about to make a comment which will
surely make me very unpopular with some. I believe that currently
the reforms that will take place in the property market as a direct
result of the money market shake up will stand us in good stead for
many years to come. It was irrational and illogical that these
financial institutions should have not practiced what they preach
when somewhat idealistically pointing out to the general public
that we should be more prudent when in fact they were more reckless
in their actions than the vast majority of the public put together.
It was quite right that the level of increase in property values
was unsustainable at the lower market levels, particularly first
time buyers with borrowing ratios way above a level of
affordability. Over a decade ago I expressed a concern that it
seemed to be the accepted norm that very young people, without a
proven track record, specifically in terms of earning capacity were
gaining easy and quick access to borrowing hundreds of thousand of
pounds. It was their contention that they assumed an automatic
right to buy and a right to own their own property. It was becoming
as essential a piece of status as school kids demanding Nike
trainers. The correction in the housing market will now create a
better shape to the demand and supply scenario. First time buyers
that make a good show of their ability to buy will still be relied
upon as the bottom rung of this very long ladder. Second homes and
buy to lets will also still remain, because from an investment
point of view there will be more stable, predictable and
sustainable level of medium to longer term growth. As for the rest
of the market, if property values do not escalate at the same rate
that we have seen over the last tens years but do so with a more
gradual and steady increment, there will be less spontaneous,
impulsive buying and a more disciplined process applied. The theory
of fearlessly driving for the top of the ladder will be long lost
on those doing so more methodically with safety harness, ice picks
and crampons which will be a welcome change. This is in my view, a
‘no pain, no gain’ scenario. Every market home spun or
global will go through a transition and evolutionary periods of
change. The current reforms are forcing a number of industries to
look very closely at the way in which they manage both growth and
risk, and indeed risk and reward. This applies to all including the
US, Asian or UK economies. They now have to and will continue to
recognise that the time for change is now and as painful and
unpopular it will be for some, I believe that the vast majority at
all levels of society will face better prospects as a consequence.