How to Thrive in a Recession
Most people you ask will shiver or grimace when you mention the word 'recession'. But for us property investors, a recession can be considered a time of opportunity. The Oxford English dictionary describes a recession as 'A period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP in two successive quarters.' The use of the word 'temporary' is key here.
The 2009 'Great Recession' or 'Credit Crunch' brought about loses for many people in the UK. A reported 1.3 million jobs were lost in the UK alone. The housing market played its part in the blame, lenders were granting subprime mortgage loans to borrowers with poor credit. The borrowers could not pay the loans back when house prices fell which resulted in the housing 'bubble' popping. Many people panic and decide to sell their house quickly rather than wait another few years for the prices to go back up.
The graph below shows a significant plummet in house prices through 2007-2009. In 2009 the graph displays that the property market was at its lowest over the last decade. It then increased significantly from 2009 - 2011. Now in 2019 house prices are slowly beginning to decrease once more with the uncertainty of political on-goings such as the general election and Brexit.
So, if you were to have bought a property in 2009 and held on to it for a few years, you would have benefited from what is called capital appreciation. Capital Appreciation refers to the increase in value or price of assets.
Buy when the market is low. A recession can encourage many people to sell their homes quickly, as they fear that the prices may drop even lower. This means you get more 'motivated sellers' and may be able to negotiate a better price for the property you were buying. Buy these assets when the price is low and hold onto them as their price is going to eventually increase. So do not get put off by dips in the market today, see them as an opportunity.
Famous stock market investor Warren Buffet says “Look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it.” Buy when the prices plummet and hold on to your assets.
A recession encourages many people to panic but it is important to do the opposite. Stay calm, as Warren Buffet says; 'be fearful when others are greedy, and greedy when others are fearful'.
A recession is an opportunity to purchase when the prices are at their lowest. But it is almost guaranteed that house prices will increase again. So don't panic, stay calm, buy when the prices are low, and hold onto your assets.
Thanks for reading.
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