The property market is crashing (and nobody's talking about it)

0:01Hey everyone, Rob B here with Rob D. There's been a property crash. It has already made a material difference to many property investors. It will also create an opportunity for others. But the crazy thing is, is that nobody is talking about it.

0:24Welcome to the Property Podcast. Thank you for joining us. In case you don't know, We run a business that arranges more than£100 million worth of property transactions every year for our clients. You can find out about that at propertyhub.net slash invest. And like Rob said, if no one else is going to talk about it, then we will. A property crash is underway. But bear with us on this. It's the good type of property crash. Stick around to find out what we mean. Let's start, as we always do, with our news story of the week. And Rob, following on from last week's market update where we talked about mortgages and how the landscape is improving there because rates have started to come back down again, which is great.

0:58A bit more good news, which is lovely, two weeks running, which is that the amount of product choice has climbed back up as well. So there are now over 7 ,000 deals available, which is the first time since March there's been that many products available. And this is great because, well, for two reasons. One, it's always good to have choice, right? But two, more importantly, Rob, it's competition. So the more competition, the more products out there, the more aggressive they'll naturally become with rate cuts. So the trend that we started to see last week will hopefully continue for a little bit longer.

1:33Exactly. And the other really positive fact in this data we're looking at is how long products are sticking around for. So the average mortgage product sticks around for 15 days, which might not sound like much, but lenders are always repricing their products. So it's very common for products to come off the market and come back again slightly different. And that 15 days is up from eight days in April. So what this is really giving us is a measure of volatility. So April was peak volatility. No one knew it was happening. Mortgages were coming on and off the market all the time. Now that's very clearly improved, which is very good news for your stress levels if you are applying for a deal.

2:08I'm really excited about this week's episode because it's a concept that's just not talked about anywhere else. And Rob, I'll be honest, when we put this concept out for the first time, I thought others were just going to jump all over it and go, aha, well done guys, you've spotted something others aren't talking about this and we'll all start talking about it now because we have quite a big reach and a lot of people in the industry listen to this podcast so I fully expected after talking about the silent property crash last time around we'd start to see it talked about elsewhere and the feedback that we got from the first episodes on this subject has been phenomenal and it was like a aha moment for so many people but yet even though it's still at play and very much at play which is why we're talking about it today because there's a big update to come but even so nobody's talking about this it's bizarre but it's so important it's like it's actually critical to understand what is going on if you're an investor and if you don't understand then you're at a massive disadvantage but yet crickets nothing nobody's talking about it no what everyone is talking about is nominal prices the price that you actually see in an estate agents window if people still look in estate agents windows so whenever you see house price data come out that's what's being talked about and that's what grabs the headlines at the moment there are some big headlines around that so right move's data which has just come out is showing a fall in asking prices compared to last year we've been very used to low growth now we're actually seeing a fall asking prices which is what right move reports on 0.5 percent lower than a year ago and savils also put out an update to their five-year forecast which got a lot of attention because they are now predicting that prices are going to fall by 2 % across 2026.

3:48Previously, they thought there'd be 2 % growth. So naturally, these are the stories that get the headlines and get people thinking, is this the start of a property crash? Is this where it all begins? But Rob, what we've been saying for the last, I don't know, how long couple of years, is that actually, we're not just starting a property crash, we're in one, we're in a silent property crash. And when you appreciate that, everything changes. So we should probably explain what we actually mean by a silent crash? Yes and when you hear the numbers you'll see the word crash is absolutely justified. It's not sensational.

4:20We're in crash territory here but what do we mean? Well a silent property crash is taking property prices and adjusting it for inflation. So let me give you an example of how this would work. If property prices grew by say two percent you might think that property prices have gone up by 2%, nominal prices, if they've gone up by 2%. Stick with me. If inflation, however, is at 4%, well then in real terms, property hasn't gone up by 2%. It's actually fallen by 2 % because everything else is 4 % more expensive, but yet property has only gone up by 2%. So you may read reports to say property was up by 2 % that year, But actually, because it's lagging behind inflation, it's actually fallen by 2%.

5:12And if property prices were, say, flat at zero and inflation was at 4%, well then that's a minus 4 year. And you may recall we've had a lot of inflation over the last few years. A tremendous amount of inflation. And don't worry if you can't remember what those numbers are. We're going to catch you up and bring you back up to speed. But because we've had sustained inflation for a number of years, and property prices have been broadly flat, or just a little bit of growth in nominal terms, it's meant that we've been living in a crash environment. And Rob, there's some data out in the last couple of weeks, or data of forecast, probably a better description, by Savills.

5:55And with the Savills data, it's not really going to get headlines, right, if property falls by 2%. But the fact that if it falls by 2%, but then we have inflation of 3%, then actually it's a minus 5 fall. And that's a more noteworthy number. But the Savills data doesn't get any headlines. Yes, in property circles it gets mentioned, but nobody's stopping you in the street going, oh, you're a property investor, minus 2, eh? How are you sleeping at night? Because, let's face it, minus 2 is nothing. But minus 5, that's more interesting. And when you start to tot it up year after year, actually, it's a big number.

6:34And we can see precisely how big that number has become over previous years by using Nationwide's data. So they release a quarterly data series, UK house prices adjusted for inflation. And it's when you look at this that you can see the extent of the silent crash so far. So the most recent peak for property prices was in the first quarter of 2022, when you adjust for inflation. And between the first quarter of 2022 and now prices after adjusting for inflation have fallen by 17.4 percent that is a crash right that's why we're not saying we're not exaggerating 17.4 percent is a big number and the reason that no one notices this is that over the same time the average nominal price the price that you see reported on in the indices in the papers everything else has gone up the average price has gone up from 261 ,000 to 275 ,000 and that Rob is why the crash is silent right because it looks like property prices have gone up a little bit gently over the last four years but it's when you adjust for inflation that you see that prices have fallen by 17.4 % and as you just rightly said if inflation is around about three percent at the moment and if let's say for the sake of argument Savills are sort of right and prices go down by one percent that's another 4 % full.

7:49So by that point, you're well over 20%. And that's headline worthy, at least to us. The 20 % difference is massive. And it makes a real impact to everyone, not just investors, people who own property. This is important because when you understand this, it can give you perhaps more confidence. Because people like Fred Harrison are saying, well, there's going to be a crash. You could say to Fred, well, it's happened, mate. It's already happened. It's been a big crash already when you look at inflation. It also means though, and I think this is the most interesting part Rob, and this isn't a popular thing to say, but property is the most affordable it's been for a long, long time.

8:31Because at property's peak, so if we take these numbers and look at the crash since 2022, when it was at its peak, property prices in real terms, so that's adjusted for inflation was$332 ,000. Today is$274 ,000. Going down from$330 ,000 to$270 ,000, that's a big number, right? It's 50 grand. It's a big percentage. If it was a nominal term, she'd probably be feeling really bad about it if you'd bought a property at the peak in 22 and it was worth 50 grand less today. But it's not. It feels different and we will get onto that. But I think what's more interesting Rob is to go okay well let's look back if property prices at 274 today when was it last this cheap to buy a property?

9:18Well there are two answers to that and those answers are 2013 and 2003. So between those dates you had the big 0708 boom and crash so by 2013 they settled back at 2003 prices and that's still where we are now. What that means is over the last 20 plus years there has been no growth other than inflation. All you've had is general inflation. So house prices have gone up, but it's not been a house price boom. House prices have done nothing special. They've done nothing more than your grocery shop or anything else. And this gets interesting when we look at affordability, because if you say, well, the housing market is driven mainly by owner-occupiers.

10:00So what matters is how much house can someone afford to buy given their wages? Have wages kept up with inflation? And the answer is, if you look over the post-crisis years, so the last 17 years or so, then property hasn't particularly got more affordable because real property prices have been pretty much flat and real wages have also been pretty much flat. But over the last few years, Rob, that has changed. So since 2022, which is that peak we talked about, average wages have pretty much kept up with inflation. Obviously, not for every job and not across every period of time. But if you take the start and the end date, wages have roughly kept up with inflation.

10:35That's over the same period that property prices have fallen by 17 % in inflation-adjusted terms, which means if you put aside what's happened with mortgage rates, which is a big if, just on price to income, property prices have got cheaper over the last four years. And I'd say that's probably not something that most people would intuitively believe. Or in some cases want to believe, because it's not a popular thing to say, right? Properties become more affordable. Some people can't get onto the property ladder. I get that. And so it's not something that people are comfortable broadcasting, but the data tells us.

11:09Some people may not like us reporting the data, but that's what it is. It's data. And that's the truth. So I think it begs the question, Rob, like, what do we make of this? Is this a good thing? Is it a bad thing? What's it mean for people listening to this podcast? And that's the most important thing, right? Data is interesting, but what does the data mean? What does it mean for those people listening today who want to invest in property? and what about the people who have been investing including us we've been investing and we seem pretty chirpy about it but we're also reported at the same time there's been this silent property crash like how do we feel about this let's dig in rob let's start with ourselves and others who have been investing should we all be crying ourselves to sleep tonight not at all because the best time to buy property is when prices have fallen the weird thing about market psychology is general is people only generally want to buy when prices are high and rising but the best time to buy is after prices have fallen.

12:03So I think we can all agree that a bad time to buy property would have been 2007. House prices peaked in 2007, the third quarter. That was just before they crashed. If you bought then, you would still be okay by today. If you managed to hold on for the first couple of years, you would have come out ahead, but you'd rather not have done it. But when you adjust for inflation, we're currently 25 % below that level, 24.4%, but we're basically 25 % below that level. So now is a far, far better time than then to be buying property. The best time to have been buying property would have been around 2012 or so, 2011, 2012, because that's when the crash would have worked its way through, prices pretty much bottomed.

12:42But how many people were actually buying in that year? Not very many, because buying in or soon after a crash, it's really hard psychologically. And it's really hard practically, because lenders are terrified and they're trying to mop up all the mess from the fact that their loan book has suddenly exploded and so it's all very well to say oh yeah i'll just wait for the crash and i'll buy then yeah great but really hard to do silent crash though rob same principle but a far easier time to actually take action i completely agree rob and that makes sense for those going in now but i think you've been a bit like a politician there i don't know if that's deliberate or whether i was boring you but it's like what about the people who've been investing what about us we've been investing through this we've been saying to other people invest and we but we're now saying we're seeing drops of 20 and we've all been investing through a crash like are we nuts have we lost the plot like what are we doing like we just love misery like why have we been doing this and even worse telling people to invest what's the story have we lost all credibility now okay no i slightly misunderstood what you were asking but that's okay i'm not being a politician the answer is not that we've had a disastrous time because the point here is as an investor who's using a mortgage and the mortgage is critical.

13:55Prices going up in nominal terms is really good news for you, even if they're falling in inflation adjusted terms. Because remember, your debt is fixed. You borrow a certain amount, you pay the interest, you'll always owe that amount. If the value of your property goes up, it doesn't matter if it's because of inflation or house price boom or anything, whatever the cause is, that is extra equity to you when that happens. so as we said since 2022 headline house prices nominal prices have gone up it's got up from 261 000 to 275 000 so if you bought the average uk home and had that exact increase then you would have made 14 000 pounds over the last four years not loads it's not exactly blockbuster but it's hardly a disaster is it and this is the key point right and this is why we keep banging the drum and we will not stop banging the drum because people ignore this advice.

14:45Property investment, the reason why it's so brilliant to do over the long term is because of inflation and leverage working together. That is critical. Do not miss this point. The fact that it's been inflation means that your debt has been devalued. So you can't lose when you're using leverage. If property prices are going up, then brilliant. But if they're falling because of inflation, well, brilliant. It doesn't matter. And then you're getting returns as well because of that inflation that's led to rental inflation. So returns are better now than they were. It's a win-win situation. But only when you leverage.

15:27If you've been building your portfolio over the last few years in cash, you have not benefited from this. In fact, you've been punished. And that is what's happened. It's been silent, you've not noticed, but you've got a little bit poorer. The equivalent of this is people who have savings, and they just have savings. And every year, because of inflation, most years, they get a little bit poorer. And you don't notice. And it's the same with this silent property crash. Inflation is the silent thief that takes from people who invest in the wrong way. Whether it's people who leave money in a bank account, or it's people who don't use leverage when they invest in property.

16:07But this is why you use leverage. This is why we use leverage. This is why leverage is such a powerful tool. And there's other benefits as well. We've done plenty of podcasts on the benefits of leverage. This isn't the only one. It's not exclusive to this, but it's so important. And hopefully now you understand why because you can invest through a sign of property crash and still do well. And many, many people have. And Rob, a silent property crash is actually brilliant because it's the least painful of all crashes. A normal property crash where nominal prices collapse, there's no escaping that.

16:47There isn't a winner in that situation. Not for lenders, not for investors, not for homeowners. Nobody wins. But a silent property crash, there are winners and there's lots of winners and actually it's the least painful way of doing it even the people who've lost they've not really noticed they've lost like i've said because inflation's a silent thief if you're going to lose this is the i suppose the way you want to lose as well but as we've discussed you don't have to lose in this situation that's right a silent crash is pretty much the best outcome for everyone because we did get to a point where prices had got ahead of themselves affordability was stretched so that could have corrected itself with a big actual crash but that would have had all the knock-on effects you just spoke about.

17:29The fact that it's happened in the background with most people completely oblivious to it is a rare good news story when it comes to UK property. And I think when you look at this from the point of view of an investor who is still building their portfolio, this is really good news. But if you've got your portfolio, it's as big as it's going to be, then what you really want is maximum growth. You want the property market to go bonkers for a few years, get you loads of growth, and then you have the discipline to sell up and get out before it comes down the other side again. If you're still building your portfolio though, which most listeners to this podcast are, then what you want is a market where risk is low, so you're not suddenly going to get a crash, and where competition is low, so you can go out and get good deals.

18:10Would it be better for you to have a market where prices are going up 7%, 8%, 9 % a year? Well no, because that would create risk and it would pull in competition. And with prices doing what they are now, which is going pretty much nowhere in inflation-injusted terms, well that's fine. Because as we said Rob, you win from prices going up, even if that's only due to inflation, versus your debt, which is fixed. So it might sound weird because we've got this episode with crash in the title, but we're saying that as an investor, this is kind of what you want. It is. If you're going to choose your poison, what type of property crash you're going to have, you choose this one all day long.

18:45And we are still in the middle of it. Because Savills might be wrong. Property prices might be flat this year. I mean, like I said, who cares if it's up to zero or down to? It's not going to change your world. But with inflation, we are going to see a minus this year because property prices just won't beat inflation this year. So we are still in this crash. Property continues to get a bit more affordable. But that's okay because inflation is eroding your debt. Your returns are improving. And property, at some point in the not-too-distant future, will get noticed as a great investment tool. And what do I mean by that?

19:28Well, of course, you're listening to this. You almost certainly believe that already, that over the long term, property is a great investment. But the way things are tracking is that yields are getting so good now with property that people will start to take notice and go, wait a minute, I get 4 % in the bank, but I can get 8 % through property. People are going to start moving towards property investment just for the returns. there'll start to be mainstream press talk about it as it's noticed as property becomes in vogue again it's not nobody talks about property investment at the moment and that's an opportunity right which we talk about regularly but the fact is that at some point it's going to be hard to miss what if this continues returns today you can get six seven eight percent you can get a big discount you absolutely should be getting a big discount if you invest in the right way we've talked about that recently and giving you the information how to do it.

20:24But the point is, is that things are getting better and better for property if you're assessing it as an investment tool and it can't hide forever. And when it's noticed, everyone will notice. And that's when the hype train begins. Might be two years away, might be four, but at some point the masses will notice. And that's when we come out of the crash which we've been in and we start to see the growth phase in nominal terms and then when that once that starts guess what happens people started ignoring the yield the reason why people started to get in and they go wait a minute i'm getting in because property grew five percent last year and then what happens after that property grew by eight percent because everyone got attracted to the five percent and then suddenly people think property is a sure thing and an amazing way to make wealth and all the media will talk about it and there'll be more tv programmes talking about how you can make money from property and we'll see a lot more of those refurb shows and I know you might at this point in time go Rob surely not but what I can tell you is the world is full of cycles we've seen cycles throughout history in terms of war cycles power shift cycles and of course economic cycles and we'll be in another one at the moment property isn't sexy.

21:42But at some point, whether you believe it's one year, two or 10, at some point, what I can guarantee you is it will be sexy again. It will be the thing that everybody wants to invest in. But you, you're the smart one because you're still listening now. And you can see that property is a great investment now. And not just on blind belief, but on numbers, on data, on the affordability, on the fact that yields are fantastic, that with leverage, it's incredibly powerful. So you, because you are listening to this right now, are in a very, very privileged position that you can take advantage of. And you will be sitting very smug when the masses start piling in.

22:27Well, we've just got time before the end of the show for Hub Extra, the section where we bring you a little bit more, a tip, a tool, a resource, something to make your life a little bit better, normally outside of property, because believe it or not, property is not everything. Rob, what have you brought along to share this week? It's a fun one, right? So I purchased myself a new watch a few months ago. It's a Casio G-Shock. And if you want to be able to tell your friends and family that you've got the same model as Rob P, well, it's the 2100, if you're interested. And that's the model I went for.

22:58And I've really enjoyed it. Why am I telling you about it? Well, very recently, I was at the Formula One and I was rubbing shoulders with people in very privileged positions and one of the people i got chatting to had a beautiful watch on worth many tens of thousands he let me hold him put it on beautiful not for me but i could appreciate what it was and why he really liked it and he looked at my watch and with great enthusiasm he was like well that's really nice as well what is it and i took great pleasure in telling them it was my Casio G-Shock and it was£100. So if you want a watch that will impress serious watch investors who splash out a lot of money on their watches, well, you can do it for £100.

23:41I love the watch. It's a great watch. I'd like the look of it. It might not be for you, but I think the tale is that you don't need to spend tens of thousands on a watch to get great pleasure from it. Yeah, buy the G-Shock instead and you'll literally have enough left over for a deposit on a property, which is pretty mad, isn't it? But it's true. Yeah, watches can be beautiful and they can be a good investment buying property is probably more tried and tested and you can't leverage a watch remember that actually if you're wealthy enough you probably can but for our purposes you can't leverage a watch i'll make inquiries what rates i can get against my g-shock i'll let you know next week right well that is us done for this week thank you for listening we will be back to do it all again next week so we will see you then bye-bye bye-bye