What can history can tell us about the future for the property market
By Advantage Property | 16th Jun 20
Everyone is scrambling to understand and manage the Covid-19 health crisis, including economists. By searching past crisis, we can see trends with the economic damage and in turn recovery. We are more intertwined as a world economy than ever before so we are trying to predict our way forward the best we can.
There is particular interest in the economic recovery from the 1918 influenza, the most recent pandemic that resembles Covid-19 in terms of global reach. That recovery came after a relatively mild and short recession and after people went into similar lockdowns including quarantines, school closings and other social distancing measures. This is the same strategy currently being used to manage the current outbreak here in Australia. Here we examine some of the most relevant global events which affected the global economy and in turn its recovery.
SPANISH FLU - 1918
There is particular interest in the economic recovery from the 1918 influenza, the most recent pandemic that resembles Covid-19 in terms of global reach. That recovery came after a relatively mild and short recession and after people went into similar lockdowns including quarantines, school closings, and other social distancing measures. The stock market, for 2 years from December 1917, rose by 80%, though it also marked the end of WW1.
The largest one day fall in living memory. SGH note that “In terms of this COVID-19 correction compared to 1987, we are close to the bottom.”
The end of Japanese domination of world financial markets, where the Japanese Equity market PE was 60x. Current ratios are a fraction of this, with many major company’s PE’s well under 10 .
Australia’s last recession and CBA was yet to be listed, though the more common view at present is around the future of retailers. A property lead recovery followed.
George Soros took on the Bank of England, forced the British Pound out of the Exchange Rate Mechanism, and won in the market.
The great Bond crash, when the US greatly increased interest rates and taught investors for the first time that you can lose money by investing in Bonds.
The Asian debt crisis, when ASEAN foreign debt to GDP exceeded 150%, and when the Asian Tiger economies lost their claws.
The Russian Debt Crisis, where the termination of Long Term Capital Management and where massively geared enterprises bought up illiquid Russian debt assets.
The Dot Com Crisis where the NASDAQ plunged by 85%.
SARS & MERS 2002
In more recent times the world has experienced similar outbreaks to COVID-19 in the form of SARS & MERS.
The GFC, mainly caused by falling house prices due to a huge oversupply of new housing and imprudent lending practices. It saw the US Equity market fall by 45%, with many global financial institutions going to the wall, and/or needing government bailouts.
Historical data from the late 1990s show a financial crisis is often followed with a steep increase in housing prices. If real estate grows in a similar manner as the 2000s, safe haven assets like gold and potentially Bitcoin may follow.
The housing market is projected to see a steep sell-off in the second half of 2020. Highly-populated markets which saw housing prices spike to record high levels in recent years are also expected to see a correction.
The medium-term trend of the housing market remains gloomy. But recent studies show that the next correction will mark the start of a strong housing market recovery and therefore if history has taught us anything is that it is as always time in the market not timing the market.