Indications of a property bubble?

I don’t believe in market predictions. Here’s why;

  1. The property market itself is a complex system.
  2. Many of the variables that determine its behavior and direction are simply unpredictable by nature.
  3. Often, the things that have the biggest impact are the things that we failed to even consider.

You can make predictions based on historical performance and general principles – but judging by how often ‘expert’ macro-predictions are wrong, this doesn’t seem very meaningful.

Just my own two cents.

However, this does not mean that we can’t watch for indications of potential events.

There’s a big difference between making a self-important prediction vs. recognising something as a possibility and taking appropriate measures.

The big question hanging in the air is: is there a bubble? If so, will it pop and cause the property market to come down hard?

To answer this, we can look for useful ‘indicators’ of a bubble such as:

New entrants to the market: Whenever there’s a bubble, there are usually a flood of new participants jumping into the market who otherwise would not have. Generally speaking, this seems to be true for the UK property market at the moment.

Higher leverage: The mortgage market has been active, and from this article by the FT it looks like more people are tapping into bridging loans.

Radical product innovations: This can be innovations in the investment assets themselves or the platforms that facilitate the market operations. People can’t resist ‘new’. Not necessarily the case in the UK property market imo.

The presence of these indications does not mean that there’s a bubble that’s about to pop. For the most part, they’re ‘necessary but not sufficient’ markers of a bubble.

We don’t need to make predictions and be ‘right’. But as investors, we do need to recognise possible risks and be ‘ready’.

Stay epic,

Sam Lee

Site Footer