Assetz® News - Recovery boost for property investors

Recovery boost for property investors

11th June 2009 |

For those investing in property, the long-term hopes of a recovery have always been linked with the wider economy. True, for investors a depressed housing market has not been all bad news - since the credit crunch has seen many people having to rent as finance to buy has been all but unobtainable - but the prospect of capital gains has been put on a back burner with a distinctly low light as property prices have plunged.

The last few months have certainly brought some hopeful signs, with increased buyer enquiries, more mortgages being lent, more sales being recorded and price rising. The last of these was shown in the May figures from Nationwide and Halifax and now in the April data from the Department for Communities and Local Government, which showed a 1.1 per cent rise when it was released earlier this week.

All this may suggest a property market revival is underway, just what investors are hoping for. However, analysts have urged caution. One reason for this was explained by Nationwide economist Martin Gahbauer, who stated: "In the current downturn, the combination of rapidly rising unemployment and tight access to credit implies that the last of the price declines has not been seen yet."

While the credit situation may only be gradually resolving itself, mention of unemployment as a factor that could put the brakes on any recovery is not new. After all, this could see people who might have been poised to buy soon while prices are lower suddenly losing their jobs or finding them under threat, which would stop them going ahead.

For that reason, a wider recovery that will reverse the rise in unemployment can help aid the property market's own upturn by removing this factor. Therefore, investors may be particularly pleased by revelations today that the recession might - against all the recent expectations - be over.

Such a claim emerged in new data from the National Institute of Economic and Social Research (NIESR), which showed economic growth for the UK of 0.2 per cent in April and 0.1 per cent in May. The report said March appeared to represent the "trough of the depression" and noted that such a finding was "coherent with the broader picture of stabilisation which has emerged since we first suggested that the output had stopped falling in our GDP [gross domestic product] release on 13th May".

Of course, such figures await more corroboration and Britain is not officially out of recession yet. Nor does this mean that there will necessarily be a rapid rebound in economic fortunes soon. However, it also suggests that the rapid deterioration in the economy has passed, even if it does turn out that the contraction is not completely over just yet.

One reason there may not be a quick recovery is that unemployment is a lagging indicator of economic trends and as jobless figures may be expected to continue rising even after the economy begins to grow again. For that reason unemployment may still have an impact in limiting the recovery of property prices and transactions. But if the end of the recession has come sooner than anticipated, then logically so, in turn, should the subsequent time when that particular barrier to market revival is removed.