Double Dip Unlikely, Says David Smith

On 4^th July the Sunday Times ran a detailed article that considered the UK's current economic circumstances and the potential for a 'double dip' recession.

In the last few weeks many property investors have discussed what a double dip recession might mean for property prices and whether they should stay out of the market for another few months, or few years, in the hope of picking up property at an even lower price than today.

double dip recession

So this possibility is worthy of consideration.

Let's start by reviewing what's happened to property prices since early 2009 - exactly a year ago. I had exactly the same conversation with investors then because I was extremely bullish about property prices and I considered that we had reached the bottom of the market around that time.

In the last 12 months property prices have risen by around 10% across the UK, according to both Nationwide and Halifax. So investors who stayed out of the market then, are facing not lower but higher prices now. Not what they wanted, but this illustrates the potential dangers of waiting for a double dip that might not happen!

So what's David Smith's view? As a respected economics editor, he's as well placed as anyone to analyse the current situation and come to a reasoned view.

To summarise his view, he thinks that investors should be worried about their portfolios (the context is for SHARE portfolios), but he doesn't consider that we should talk ourselves into a double dip that is not there.

I deal elsewhere in a separate article about the disaster of share investment and it gives me no pleasure that David Smith is supporting my view that even now share investment is challenging!

So what facts and judgements does David Smith use to decide that a double dip is unlikely? Here's a summary of the main arguments:

The global economy is now recovering and the chances of a double dip are tiny. The IMF expects global growth to average 4.5% a year through to 2014.
China's growth is still running at around 10%. The global story, of a robust recovery led by emerging economies, appears intact.
Britain's recovery looks equally robust. Various figures demonstrate increased investment and a good first and second quarter for industry.
Default rates amongst households and business have fallen.
From our own perspective we see interest rates still held at 0.5% and many commentators expecting this to remain the case past the end of 2010.

There is no evidence to support an imminent downturn in either the global or British economies.

Given this situation, our view is that the likelihood of a downturn is very low and, frankly, with the current pent-up demand for property turning into increasing rents, we think it would be exceptionally difficult for property prices to fall again.

What we do know, at Axis, is that large discounts are getting increasingly difficult to obtain for investors and that prices are creeping upwards. There is far more evidence that any delay in buying property now will result in higher investor prices, than the miniscule fear that a double dip will result in lower prices.

Our view is invest in the best deals whilst you still can. The 'window' to do this is closing fast and probably won't exist beyond the end of 2010.

Don't say I didn't warn you!

Do you agree? Have your say below.

Live with Abundance

Rod Thomas