Assetz® News - Long term hopes

Long term hopes

2nd October 2008 |

There have been enough times when experts on buy-to-let investment have preached the virtues of investing for the long term. Every survey of the Association of Residential Lettings Agents emphasises that most landlords do just that, the most recent survey showing that an average investment lasts 16 years.

Now the emphasis on the longer term has been made across the property market as a whole. Publishing both its monthly house price figures for September and the statistics for the third quarter of 2008, Nationwide Building Society revealed what on the face of it look like gloomy statistics. In September alone prices dropped by 1.7 per cent, while the quarterly figures show a 4.6 per cent change. In the latter case, all 13 UK regions revealed a decline, with Scotland, having bucked the trend for so long, seeing a seasonally-adjusted drop of five per cent.

According to Nationwide, the September fall was "not surprising", given the recent "turmoil" in the financial sector. Chief economist Fionnuala Earley said that there is nonetheless some evidence of "stabilisation" in price falls, while also noting that some people will be better off for house prices falling as it will improve affordability.

But what matters more than just the current trend is the longer-term prospect, Ms Earley noted. Not that Nationwide is predicting an imminent about-turn, but rather that "over time the global economy will recover from current difficulties, helping to end the cyclical downturn in property markets".

Such an analysis may be a sober and appropriate reminder of long-term factors at a time when the situation appears to change by the week. A few days ago, for example, it appeared the credit crunch was about to be eased by the $700 billion (£380 billion) bail-out of the US banking sector. Then Congress voted against the measure and the word "meltdown" started appearing on the front pages of the papers.

Yet now the situation has changed again. A revised plan has been drawn up, including as part of the package tax breaks to meet the concerns of those members of Congress concerned about the burden the move would place on taxpayers. With the Senate voting 74-25 in favour of the new arrangement, Congress will now get a second chance.

In addition to this possible easing of the crunch, with all its attendant knock-on effects for liquidity around the world, the Bank of England's monetary policy committee (MPC) is increasingly being tipped to cut the base rate next week. Speaking to the Financial Times in the wake of the latest Chartered Institute of Purchasing and Supply/Markit purchasing managers' index - which at 41 points last month was at its lowest in its 17-year history - Simon Hayes of Barclays Capital said the recent market situation " will make it relatively easy for the monetary policy committee to sell a rate cut as being consistent with hitting the inflation target in the medium term, even as inflation hits 5 per cent."

This decision is not due until October 9th, but if there is a rate cut, it could be a further sign of better things to come, not least because it would show that the MPC is convinced inflation will soon cease to be the main problem. Moreover, once one cut is made, more could follow.

Of course, neither the US bail-out nor rate cuts in the UK will necessarily bring about a rapid recovery, given the depth of the current world financial crisis. But what they may do is start the process towards better times, ones on which those who do look to the long-term when investing in property will already be focused.