Property Crashes compared to Stock-Market Crashes – long term
Posted by markharrison on January 14, 2009
This week’s Economist has an interesting article based on research done by Carmen Reinhart of the University of Maryland and Kenneth Rogoff of Harvard. (The original paper, The Aftermath of Financial Crises is available to download – click on the title in this blog.)
The paper investigates “severe financial crises”, including “headline names” like the US (1929), Argentina (2001), Hong Kong (1997) and Japan (1997), as well as more minor crises.
Some interesting statistics, though:
- In major financial crises, House Price falls have averaged 36% from peak to trough, and the slump has lasted 5.0 years on average
- In major financial crises, Share Price falls have averaged 56% from peak to trough, and the slump has lasted 3.4 years on average
So, we can see that house prices do fall less than shares, but that house price slumps can last a very, very long time.
Of course, a lot hinges on whether we really are in a “severe financial crisis” – if we are, then we could see another 3-4 years of property price falls in the UK. But if we aren’t, well things might turn around. That having been said, the most hopeful forecasts I’m seeing from serious ecomists talking about how things might reach the bottom by the end of 2009, rather than carry on falling.
Buying rental property? Not me, not this quarter.