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Inflation and Recession

The bankers wanted inflation, well, they got it.
Governments got recession and inflation. Well, what did they expect? Keep printing money and you depreciate the currency which leads to inflation. Itís not so much that prices go up, but that the value of money goes down. And these days that value is going down very nicely.
As for inflation, if the idiots in government pick a fight with the government that provides them with energy and agricultural products, once again, what can you expect?
Hereís what the Bank of England monthly report just released has to say on the matter:
ďGDP growth in the United Kingdom is slowing. The latest rise in gas prices has led to another significant deterioration in the outlook for activity in the United Kingdom and the rest of Europe... Real household post-tax income is projected to fall sharply in 2022 and 2023, while consumption growth turns negative.Ē
U.K. inflation hit a 40-year high of 9.4% in June. But the Bank of England said it expects headline inflation to peak at 13.3% in October, and to remain high through 2023.
This means the real estate markets are headed for hard times, and good times. But do get these things right. Property does act in some respects like gold in these conditions. Trouble ahead, so expect the price of gold to rise. Except that isnít how things work out. I got that wrong back in the eighties, but I learn fast. When things start to implode everything implodes, even gold and real estate. But the good news is that certain assets do rebound, but not straight away. Real estate will rebound to the extent that it will eventually rise in value to counter the fall in the value of money, but that means the clever clogs among us buy real estate not as we go into the maelstrom, but after we come out of it. You buy when everyone else feels defeated, and no-one else is buying. Remember the mantra: you make money when you buy, not when you sell. Buy low, sell high. You buy low after the crash when no-one else wants to know, but you wait for interest rates to start falling before you make your move. At the moment they are going up, so now is not the time to buy.
Let me just for a moment swap over to some data from the USA.
The average home price in the US fell 19.8% over the course of the last two months. That's the biggest two-month move in any direction since at least 1975.
And Bank of America reports housing affordability is at its lowest since 2006, which was the top of the biggest housing bubble the world has ever seen.
As we go into this mess you need to either sell into expected chaos, or simply stay out of the market. Thatís how you deal with the recession part of the equation. Once things are in a bad state you need to re-orientate your thoughts, and weigh up the implications of higher interest rates, lower wages, and the effects of the falling value of money. That will eventually lead to a stagnant property market, or a falling market. In real estate you always get plenty of warning before prices start to rise again. Real estate usually is the last category to recover. You can afford to wait, at least until I sound the all-clear. Iíve done it several times before, and unlike other so-called experts, I always get it right.



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