Property Market in 2012
Scenario Three: The great euro crash finally comes.
Relief all round. Not a pretty sight, but at least the waiting will be over. There will probably be a couple of years of very messy readjustment. Bank lending will be down for at least a year afterwards, but will then gradually return to normal. Once again, things will be tough, but there will be light at the end of the tunnel. We will all be able to build on what is left after the crash. What that will be I dont know. I suspect things will normalise reasonably quickly. The main damage will be to those owning debt. That will ultimately work to the advantage of house owners. It will, however, not be the time to buy anew. Ideally, those wanting to buy should look to wait a couple of years after the broken glass.
The best picture of what happens after a default is to look at Iceland. Unfortunately, Iceland is a small country, with less than half a million people, and it is scarcely an international economic hub. The eurozone accounts for more than a quarter of all world trade. If the banking system of an economic hub of that size goes splat all hell is likely to break loose. I have no crystal ball. I dont think you will find anyone prepared to say what is likely under those circumstances.
Okay, so much for the home front. What about those other places where people have been investing in property recently?
Ireland: You may recall that a couple of years back I said house prices in Ireland have to drop by another 50%. Well, it’s slowly happening. House prices have fallen every year since I made that statement. However, they haven’t yet reached bottom. They have some way still to go. I note that the current auction scene in Ireland has properties selling at between 70-80% off peak prices. Bargains? Maybe, but dont expect prices to rise any time soon. Remember the golden rule. Property prices are a lagging indicator. Prices only start to rise about two years after any economic recovery. We dont even have any sign of recovery yet. There is plenty of time.
USA: The USA is still no place for a sensible person to buy a house. The whole country is in a terrible mess. It is a political and economic nightmare and it is verging on a police state. Have nothing to do with the place.
The Middle East: Turkey is still doing quite well. It is one of the few successes in Europe. If only all of Turkey were in Europe instead of a large chunk of it being in the Middle East, which is likely to catch fire and burn at any moment.
I have consistently warned against buying houses in this region. You will note from past newsletters that I made an exception of the city of Instanbul, and I’m pleased to note that tourist revenue there is up 30.1% this year. Not bad. But long term the land mass the other side of the Bosphorus is a terrible fire risk. The same is true of Egypt. In any conflagration in this region the Straits of Hormuz are likely to be the hottest spot. Too much oil for the world market flows through this choke point. Egypt is just too close for comfort.
Eastern Europe: Bulgaria and Romania are still in the grip of recession. In one sense they are moving forward, but this is not filtering down to the whole of the country. Until the rest of Europe climb out of the current mess Eastern Europe will suffer.
I think the general message is ‘batten down the hatches and take cover’.