Free markets have a tendency to ebb and flow in strange ways, bringing with them unintended or unforeseen consequences and even situations that are a little hard to understand.
Until recently, the NASDAQ, Dow Jones and other American stock markets had been performing in almost the mirror opposite direction to the wider economy. With job losses, record-setting COVID-19 statistics and a near record drop in GDP there wasn’t much to be cheerful about the state of the American economy, except the rising stock markets.
This, however, is a good example of recent events that have run counter to economic norms and logic with, for example, American job numbers fluctuating wildly. At the start of the pandemic there were up to one million jobless claims per week but those numbers quickly recovered, posting some of the fastest recovery numbers on record before slumping again.
In the UK the country saw one of the sharpest economic contractions in living memory with an enormous 25% drop in GDP for the second quarter of the year before quickly recovering again.
Some industries have been floundering such as airlines, travel and hospitality whilst others have been thriving. Logistics and property are experiencing a huge boom, as well as some food suppliers.
One thing that can be said for this year is that it isn’t treading the traditional path of recessions gone by.
Record house prices
There were plenty making the call back in March that the country would see a sudden and sustained property price crash and, in all fairness, given the carnage that was being wrought by the lockdown that was imposed at the end of the month, there were probably few who would have put serious money on it not happening.
Similarly many investors were seeking to start pulling their liquid assets out of stocks and shares in search of safer havens, but counter to all logic both kept on going and barely even dropped, save a sharp drop in February for stocks.
In fact, house prices have now hit a record high according to Halifax figures released at the end of August. It was originally assumed that this was down to pent up demand held back by the lockdown measures, however, the train has kept on going with little sign of slowing down.
First Time Buyers
One thing that the government may find challenging and may well need to find a solution to is that lenders are now pulling back from offering mortgages to First Time Buyers who don’t have a large deposit.
According to The BBC, ‘Low-deposit mortgage deals available to borrowers have plummeted in recent months as lenders play safer during the economic fall-out from coronavirus.
Borrowers able to offer 10% of the value of a home as a deposit could have chosen from 779 deals at the start of March, data from Moneyfacts shows.
Six months later, the choice was now down to around 60, the financial information company said. Lenders are being stricter about who they lend to amid fears of defaults.’
This, however, is set to drive up demand in the Private Rented Sector with supply already seriously restricted. A surge in demand from First Time Buyers unable to get on to the property ladder could see a significant drive in rental prices which, whilst not good news for the property market overall, is good news for landlords and property investors.
