What is the outlook in 2020 for investing in property?by Paul Wallace / December 9, 2019 / Leave a comment
Property eclipses equities and other financial assets as a source of wealth. For most people, house prices are far more important than the stock market in determining their net worth and well-timed decisions to trade up or down can pay off handsomely. For buy-to-let landlords, buying and renting out homes has proved a viable alternative to stocks and shares and pension savings. So, what is the outlook in 2020 for investing in property?
Looking back over the past half-century, housing appears to have been a no-brainer investment, with houses bought for tens of thousands of pounds now worth millions—but that disguises a bumpy ride. There have been notable reverses, such as the one prompted by the financial crisis. More recently, the property market has been in the doldrums, with London in particular knocked off its perch since the Brexit referendum. The downgrade to Britain’s economic prospects has curbed the growth of household incomes, feeding through to the housing market because most home purchases are financed by mortgages serviced from earnings. The market has also been blighted by uncertainty, which looks set to persist into 2020.
High stamp duties on expensive property transactions could further dampen the housing market. A drive to build more homes will also tend to curb house prices, though its effect should not be exaggerated. In England 164,000 dwellings were completed in 2018, way off the target of 300,000 a year by the mid-2020s. Even if that could be achieved, additional supply would be small compared to a housing stock of 24m in 2018.
Despite these downward pulls, house prices are likely to stall rather than weaken further. This may seem surprising, since they remain expensive by historical standards when compared with income. But that is because another crucial influence on house prices is interest rates.
In the short term, there is abundant evidence that homebuyers gauge affordability mainly by how much of their income is absorbed in servicing mortgage debt. One factor supporting the housing market in 2019 has been a fall in mortgage rates that are fixed for two or more years.
More fundamentally, long-term interest rates are crucial in determining property valuations. This is because housing…