Cover of MoneyWeek magazine issue no. 419, 23 January 2009

Bankrupting Britain

23 January 2009 / Issue 419

Why the bail-out will make things worse... PLUS:

  • Why now is the perfect time to buy big biotech
  • What Barack Obama should do now
  • The ex-KGB man who bought the Evening Standard

Excerpt

Don’t rush back to property

Good news. It’s time to get back into the British housing market. Or so the government reckons at least. Despite the fact that we’re in what most people now acknowledge is shaping up to be the worst recession since World War II, and despite the fact that unemployment is set to soar, housing minister Margaret Beckett reckons now is the ideal time to buy a property. In an interview with The Sunday Times this week, Ms Beckett reasoned that the collapse in the construction industry means that we’ll run short of houses. So first-time buyers shouldn’t wait for further price falls, because “when the upturn comes, there will probably be a mad rush”.

It’s an interesting theory. It’s also nonsense. For a start, the current slump has shown very clearly that we don’t have a shortage of property in this country. People need a roof over their heads – they can rent one, or they can buy one, but they have to have one. So given that people have stopped buying houses, you would expect demand for rental property to soar, which would in turn push up rental payments. But in fact, there’s a glut of rental property on the market, enough to push prices down.

And another thing, houses aren’t penny stocks – their prices don’t double overnight. For house prices to rise, several things have to happen. Banks relaxing credit restrictions, employers hiring rather than firing, the economy stopping its headlong descent into depression, are just a few of them. So if you felt even a twinge of panic on reading Ms Beckett’s advice, rest assured, the last thing you need to worry about now is rising house prices.

Read the full editor’s letter here: Don’t rush back to property.