So we’re not expected to comment on the subject of
the moment – house prices. Back in October 2003, when I first moved to
Cardiff, I couldn’t breathe for people telling me to buy a property.
Friends, family, the media… they all seemed to be of the opinion that
buying a flat was the safest bet in the world for my money and that I just
couldn’t lose. Well, apparently, times they have a’changed because
now everyone seems hell bent on talking about what a mess the property market
is in. So what’s the deal?
I looked at the stockmarket at the same time and wondered which would do better,
and interestingly, over the period from October 2003 to July 2008, the stockmarket
and house price index have shown similar returns, of about 26%, although they
are very much in different parts of their cycle. The key difference is that
the average house price is about £180,000 where I live. Had I taken the
property plunge I would have borrowed the majority of the cost and so I would
have seen a return of £45,000 over the period. But would I have borrowed
the same sums to invest in the stock market? Hell no! While you can get out
of it more easily than property ownership, shares are just too volatile for
most of us to take that risk. Although the stockmarket is more volatile, it
does have greater liquidity; when you want to get out you can, whereas housing
can be much more difficult to sell without taking a big hit.
What most of us realise is that property is cyclical, just like shares, bonds,
oil and all the other things that we trade for profit. If you think about the
price of your home on a regular basis then you are taking an interest in it
as an investment and less as your home. I would guess that the woman in your
life probably thinks about its value less often than you do, because she is
building a home, and you are more focused on making money.
So where are we in the cycle right now? Below you’ll see a fairly general
investment, or economic clock, which shows the order in which things go up
and down. The inner clock shows what’s happening with the economy and
the outer clock shows the causes. What you’ll notice is that the stockmarket
pre-empts the economy, usually by about a year. So it goes up in anticipation
of the economy coming out of recession, whereas housing tends to lag it a little.
In short, house prices peak just before we are officially in recession (most
pundits believe we are in recession already - it just hasn’t been reflected
in the measures yet as these are retrospective). We have left the indicators
(hands) off the clock below so you can take a guess where you think we are
in the cycle. The positions of the hands on the clock at Cavendishonline.co.uk/clock
have been decided by market professionals. It’s worth comparing your
estimates with theirs. Remember, this isn’t an exact science though -
they can’t see the future anymore than you can; they just have a more
expensive crystal ball than you!
As for house prices; well, I’ve always thought that you’ll know
when it’s reached the bottom when your mother tells you it’s the
last place you should put your money! That should be in about a year or two!
The opinions expressed are those of the author and are not held by RedHanded
unless specifically stated. The material is for general information only and
does not constitute investment, tax, legal or other form of advice. You should
not rely on this information to make (or refrain from making) any decisions.
Always obtain independent, professional advice for your own particular situation.
Ian Williams is MD of Cavendish Online
www.cavendishonline.co.uk
Future Perfect?
Raised in Cardiff, Spencer Green founded GDS International Ltd, a multinational
company that covers publishing, events and online services, in 1993. "Today",
says Green, "we employ more than 300 staff in Bristol, Cardiff and New York.
The company’s growth over the last 15 years has been fantastic." Having
originally set up in Bristol, Spencer fulfilled a promise made to his grandmother
by following that success and opening an office in Cardiff.
On the current GDS Publishing roster are glamorous titles like 100Thousand Club,
a magazine produced for the wealthiest people in America, Russia and the Middle
East, while in its earlier stages the company had its sights set on China, publishing
journals for the Ministry of Foreign Trade and Economic Co-operation. Green looks
back on this period as the lighting of the cannon’s fuse: "Success
at this stage allowed us to develop into the company we are today. We’ve
since developed projects for the World Bank and the International Monetary Fund."
GDS’s latest venture is MeetTheBoss.com, a website that takes the networking
template of Facebook and applies it solely to the financial services community.
Highlighting the growth of GDS since its inception is the site's £25 million
development budget, which is over 800 times greater than the company's £30,000
start-up cost 16 years ago.
With the involvement of luminaries from the upper echelons of the financial world,
such as Austin Adams, former Chief Information Officer of JP Morgan Chase, MeetTheBoss
has already established strong credentials as an online business tool. Added
weight comes from the depth of its early network of users, which includes top
brass from such companies as HSBC, AXA, Barclays and Visa. "We’re
looking for top level users and aiming at quality over quantity," says Green,
who plans to limit the community to 50,000 members via the site’s invitation
only membership. "Users can communicate securely via e-mail, IM, SMS and
video conferencing. A further benefit that will be of great use at this point
in time is the ability for users to learn from the biggest names in finance via
webcast interviews."
With finance companies the world over wilting in the light of the current economic
climate, MeetTheBoss could help in reducing the number of bankers heading for
their twelfth-storey office windows. To apply for membership, visit www.meettheboss.com.
Spencer Green, Chairman of GDS Publishing
House price bust? Listen to your mother