Panic now: the housing bull’s turning bearish

A property crash always unfolds in similar ways: credit runs dry, a priced-out majority stymies demand, confidence falters. Sound familiar? Then prepare for the bear, says Jonathan Compton.

A year ago, a small group of investors, including myself, approached investment banks with a substantial sum. We wanted to buy a short on any leading UK residential house-price index in other words, we wanted to bet on house prices falling. We were prepared to accept adverse terms, as long as the option was for five years. As buy-to-let landlords, we reckoned that even losing the bet (ie, if prices rose rather than fell over five years) would be cheaper than the cost of selling (after adding up the tax on gains, stamp duty and other costs involved in buying back later). In practice, we were trying to buy insurance. Yet although the banks had many put options available on foreign-property indices, none would touch our offer in the UK market.

When investment banks turn away seemingly easy money, investors should panic before the rush.I have worked in many overseas markets, and have witnessed more than a dozen major property bear markets. They always unfold in similar ways. Each market abounds with unreliable "experts", whose livelihoods depend on perennial optimism, while property owners remain mired in self-delusion, unable to countenance that the value of their primary asset is deeply cyclical. Hence I have met many otherwise intelligent people who refuse even to believe the data in front of them now. Both the 1988-1992 and 1973-1975 UK property crashes saw average house prices fall by well over 25%; in the past 20 years the UK property market has risen higher than before either of these market "corrections". When a rocket runs out of fuel it continues to rise before plunging earthwards. This is where we seem to be now.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free
https://cdn.mos.cms.futurecdn.net/flexiimages/mw70aro6gl1676370748.jpg

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up
Explore More

Jonathan Compton was MD at Bedlam Asset Management and has spent 30 years in fund management, stockbroking and corporate finance.