As many of you will know, the world’s stock markets haven’t started 2016 too well.
In fact, a recent Wall Street Journal headline screamed “RBS Warns: Sell Everything”. At the same time, industry spokespeople and economist’s forecasts’ for UK residential property is for prices to rise somewhere in the region of 6% this year.
On the face of it then, in the stock versus property decision, property looks to be the best bet. But, if you look a bit deeper, will that still be the case?
First of all, what’s going on in the stock market and are things really as bad as all that? Well, there’s a combination of issues that are spooking companies, their investors and their potential for profit at the moment.
Number one of those problems is China. Economic growth there appears to be slowing down more quickly than anticipated which means demand from there for oil and other infrastructure goods is falling. Quite quickly.
The next is that interest rates are on the rise. Of course The US Federal Reserve and the UK’s Bank of England have both given plenty of reassurance that the process of raising rates will be slow and steady and never more than the economy can handle. However, it does signal the beginning of the end to an extended period of cheap money and ultra-supportive policy.
Another important development at this time is the price of oil. After going into free-fall just over a year ago there is little sign that any meaningful recovery in the price of oil is on the way. This again relates to China, but also to the US’ new-ish-found ability to produce its own gas and energy from fracking.
To be sure there are other issues at play, including the fact that the market’s bull-run lasted longer than usual, but it’s these three that appear to be having the most profound effect on investors.
Turning to property, there’s a mixture of news that’s relevant to where prices will go – a key consideration when you are looking at your property portfolio or thinking about starting one.
One is that the supply of residential property in the UK remains woefully below the demand for it. That means that property that is for sale, particularly in popular areas, tend to be sold for a premium. Another is that even though UK interest rates will rise at some point in the next 12-or-so months, they will do so at a snail’s pace. That suggests that although mortgage interest rates are likely to rise too, they shouldn’t move out of reach for most home-owners or landlords anytime soon.
These two nuggets of information are - generally – supportive of house prices continuing to rise. Indeed, those forecasters mentioned earlier pinpoint these details, among others, as the basis for their expectations that UK house prices will probably rise by over 5% over the course of 2016.
So, after taking a look at the situation in a bit more detail it’s probably fairly safe to say that at the moment, property is the safer bet this year for your investment to grow in value.