Thursday 19 March 2020

Will property follow the stock market downwards?

I’m writing this as the FTSE 100 has seen another 10% drop amid the collapsing oil price and Coronavirus panic. The index currently sits at 5,238 (12th March close), which means it is down around 30% in just one month! I thought I’d compare the FTSE 100 index and UK house prices over time, to see whether the financial market’s discontent is likely to seep through to the property market

25 years ago the FTSE 100 index stood at 3,217, whilst the average UK home sold for £52,063. The FTSE 100 may have increased by two-thirds since, but house prices have quadrupled in that same timeframe! It hasn’t been a one-way street for either asset class though, with peaks and troughs along the way. Looking at the data, it’s interesting to see that the stock market has had many more ups and downs than house prices though. In fact, house prices have increased pretty steadily since 1995, with the exception of the ‘credit-crunch’ induced financial crisis.

Of course, the greater liquidity of the stock market is the reason for having a wilder ride of things. Property takes rather a long time to buy and sell in comparison to the almost instantaneous process of buying or selling a share. This means people can’t offload properties in an instant like they can shares, which is why the stock market can suddenly collapse like it is doing at the moment.

Interestingly, there have been times whereby the stock market has been heavily impacted by global events and yet the UK housing market hasn’t been affected. At the start of the millennium the dot com bubble burst and with it the FTSE 100 dropped nearly 50% from 6,930 in December 1999 to 3,567 by January 2003. Meanwhile, UK house prices in that time actually rose by 57%, showing that falling share prices doesn’t automatically mean the housing market will follow.

On the other hand, the recent financial crisis saw both the FTSE 100 and house prices take a tumble. Interestingly, they both peaked in October 2007 (the FTSE 100 at 6,722 and UK house prices at £186,044). That suggests the impact was felt upon both markets at the same time, rather than a fall in the stock market leading to a fall in the housing market. Both markets also bottomed out at the same time (February 2009), with the FTSE 100 43% off its peak and UK house prices 21% lower than they had been. It took until May 2014 for house prices to break through its previous high, whilst the stock market recovered more quickly, reaching new heights by October 2013.

The current decline in the financial markets has been much stronger over a shorter timeframe than has been seen before. Whilst this is worrying in regards to the impact it will have on the wider economy, history suggests this doesn’t necessarily mean house prices are set to fall as well. Unfortunately, there’s simply no way of knowing when a market has peaked or bottomed until long after the event!

This article was featured in...

If you are looking for an agent that is well establishedprofessional and communicative in Chichester, then contact us to find out how we can get the best out of your investment property.

E-mail me on or call 01243 624 599.

Don't forget to visit the links below to view my previous buy-to-let deals and Chichester Property News articles:

c/o CRJ Lettings, 30B Southgate, Chichester, West Sussex, PO19 1DP

Chichester rental valuation

No comments:

Post a Comment