A friend of mine just told me he’s planning to buy property now because he thinks inflation will push prices up over the next couple of years.
My response: maybe, but honestly, who knows? If you want to gamble, go for it, but don’t pretend like it’s an “investment.”
This friend is always trying to predict the market, but he’s usually wrong. In the past five years, he’s predicted doom and gloom multiple times: first, it was Brexit, then the crash after Brexit, and then the impending recession when COVID hit. Each time, he was too scared to buy property because “everything was going to crash.”
But guess what? Property didn’t crash after COVID. It shot up.
At this point, my strategy for predicting the market is simple: I do the opposite of whatever he says. If he’s telling me to buy, I’m probably thinking it’s time to sell.
Even though my friend has a history of being wrong, he’s not alone. A lot of people (including him) try to predict the market, especially when they’re worried about a recession. But when you call a recession every year, it’s hard to take the advice seriously.
Now, my friend is very successful — worth over £10 million. So, maybe it’s working for him. But I’d argue he’s successful despite these guessing games, not because of them. He’s great in some areas, but a little “elementary” in others.
Here’s the thing about predicting markets: You can’t do it. Betting on whether property prices will rise is more of a gamble than an investment. Real estate is not a liquid asset. It’s expensive to buy and sell, and you can’t just flip it quickly if things don’t go as planned.
Let’s break down the numbers. Let’s say you’re buying a £500k apartment. With stamp duty and legal fees, you’re looking at around £50k in extra costs. That means the property would need to increase by 10% just to break even. And in this case, the apartment’s in a seaside location and can’t even be rented out because of the lease terms. So, it’s purely a “hope the market rises” play.
If you’re buying it as a second home, that’s one thing. But my friend was thinking about flipping it for a quick profit. That’s a risky game.
My friend’s theory is that inflation will drive property prices up. But here’s the problem: if inflation goes higher, interest rates will rise too (because the Bank of England will try to control inflation). And when interest rates go up, house prices usually go down. It’s like gravity for property values.
If rates rise, it’s also likely lenders will tighten up their lending standards. So, fewer people will be able to borrow money for mortgages, meaning less demand for property. That could keep prices from going anywhere, just like we’ve seen for the past couple of years.
Some people argue that housing prices will always go up because of the supply-demand imbalance in the UK. Sure, there’s a shortage of housing, but let’s be real — the people saying this usually have a financial stake in prices staying high. It’s hard to trust that argument when they’re personally invested in it.
Here’s my advice: When you’re thinking about investing, focus on the cash flow or potential to add value, not on hoping the market will go up.
Luckily, my friend didn’t make the move and avoided buying into this market. But a lot of others might be tempted to gamble. Just remember: investing in property should be about more than hoping for price hikes.