Property Correction vs Property Crash
Over the last few months, you might have heard a few stories about house price stagnation and even drop offs, especially in London. The once out of control property market in the capital seems to have ground to a halt.
Of course, this is fuelling speculation about an imminent property price crash. After all, all the signals are eerily familiar to anyone who experienced the last market crash in 2008. That was very destructive and plenty of people who didn’t see it coming lost property and capital. However, it is very important to remember that there is a big difference between a crash and a correction.
What is a property price correction?
This is when there is a minor drop in the market, usually when the home price index falls by not more than 10% from the highest price within a year. They happen more frequently than you might expect and are actually a good thing as they help to restore balance to the market and prevent over-inflation of prices.
What is a crash?
A crash, on the other hand, is much less common than you might think and is when the price index falls by more than 10% from the 52-week peak value. They are relatively rare and are usually accompanied by a strong decline in other economic areas, such as an overall recession.
At the moment, the market seems to be experiencing a minor corrective period. But in many ways this is a good thing. The runaway and ridiculous prices in the capital are being reined in, allowing other areas of the country to catch up and level out. It’s essentially the market correcting itself.
However, with memories and scars of the last crash still fresh in the memory, some investors are getting nervous. Which is perhaps the last thing that needs to happen. Markets are built on confidence, and if this disappears, it can mean trouble.
The important thing is to understand the difference between a crash and a correction and use this knowledge to make good decisions. A correction can actually be a great time to buy, as it puts buyers in a strong position. This in turn will help to stabilise the market and help to get market growth back on track.
If you’d like more information about how the market is currently operating, specifically in the Norwich and Norfolk area, then get in touch with a member of the Agile property team.
To find out more about the local and national property market, or if you would like to chat about anything to do with property investment, give us a ring on Norwich 01603 567804 or send us a message.