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Recession Fears Rising: Renting Vs Buying Property in 2019

June 11, 2019
BY Emma Richards

There are numerous voices claiming we are on the verge of another recession. The last time we saw a financial crisis, homeowners felt a squeeze, and many of them lost their homes to rising repayments and unexpected unemployment. Is property a good investment in 2019? Before you consider getting a mortgage, check out these 5 reasons for renting, along with an alternative investment option for investing during an economic downturn.

The rise in property prices

The global property market, in general, has been on the rise since 2003. During those 16 years, 5 minor dips occurred—the most recent one in Q1 of this year—but there has not been a significant downtrend since 1997. In fact, property prices in the US are breaking records every year and have been since 2011, and it’s a similar story all around the world. Those who invested in properties back then are probably feeling pretty good as their homes continue to increase in value year after year. So why not buy property in 2019? Ask a dozen successful investors, and they’ll probably all say the same thing: buy when low, sell when high. 2019 is clearly a seller’s market. But it’s much more than that.

Recession fears

Nobody knows for sure if 2019 will bring about another recession, but warnings from CNN, Reuters, Forbes, and Bloomberg all tell a similar story. Global debt is on the rise, the dominoes are in place, and people are just waiting for the first one to fall. If it does, mortgage repayments could rise, property prices will likely fall, and unemployment levels will grow—at least, that’s what happened last time.

The property trap

If you’re planning to buy property, it means you have cash liquidity—or rainy day money—and you probably have a stable job. Life is good. But when you buy a home, you will take a very big bite out of your savings to spend on the house before you move in—assuming the down payment doesn’t clean you out.

The deed still has your bank’s name on it, but you’re feeling like a homeowner now. Your monthly payments are going to your house, not to someone else, right! Not exactly! When you borrow from a bank, your monthly payments go to paying off the initial interest. Depending on how much you borrow and the size of your down payment, it might take you a couple of years before you finally start paying off the amount that the bank gave you.

This means that if circumstances change and you decide to sell, you’ll probably make a sizable loss, even if you sell at the same price as you originally paid—which is unlikely. Add to that homeowner’s tax, insurance, and building maintenance and you’ve got a lot of additional costs that all add up. If your circumstances do change in the coming year, you might not have enough cash liquidity to ride out a storm. Even worse, tight economic circumstances might force you to sell your house when the market price is low. Imagine losing your home, losing your cash, and still having payments for the outstanding balance. That’s exactly what happened to thousands of people back in 2007/2008.

Advantages of renting

The main advantage of renting is flexibility. Your savings remain untouched, giving you a safety net for unexpected trouble, but it’s more than that. If employment becomes an issue, moving cities or even countries has fewer complications. If your income falls, it’s easier to reduce your living costs when you are renting. Depending on where you are, you probably won’t need to worry about property taxes, insurance, permissions, and all the other bureaucratic headaches. Simply put, if a recession really is coming soon, buying a property might not be the best idea.

Investing in 2019

Many economists consider the global financial crisis of 2007–2008 to have been the most extreme financial disaster since the Great Depression. Some savvy traders turned away from major currencies and looked into alternative trading instruments. In fact, those who moved their money out of currencies and into metals saw incredible gains as the recession kicked in. The financial world was falling apart, but both silver and gold prices rocketed. Metals became a safe haven, but traders had more than one source of profit during those hard times.

Traders living in the UK saw their savings depreciate as the British pound crashed in early 2008. Smart traders chose to offset their losses and even profit by opening Sell orders in Q2. Yes, it’s possible to profit during a recession by shorting a currency. Trading conditions were very volatile back then and traders saw huge profits. They also felt the sting of rapid losses due to incorrectly leveraged or insufficiently funded accounts. Having a trading strategy is smart, and using it during volatile times is paramount.

The bottom line

If you’re extremely motivated to become a homeowner, perhaps wait till the property market becomes more favorable. The recession forecasts suggest you won’t have to wait too long. Alternatively, if investing is your main goal, then consider getting a trading account in advance, and being ready to take advantage of the economic correction that might be just around the corner. Furthermore, whenever your nation’s currency grows weak, simply trade against it.

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Disclaimer: the publication of analysis is a marketing communication and does not constitute investment advice or research. Its content represents the general views of our experts and does not consider individual readers’ personal circumstances, investment experience or current financial situation. Analysis is not prepared in accordance with legal requirements promoting independent investment research and Exness is not subject to any prohibition on dealing before the release of analytics. Readers should consider the possibility that they might incur losses. Exness is not liable for any losses incurred due to the use of analysis. Risk warning: CFDs are leveraged products. Trading them carries a high level of risk, so it is not appropriate for all investors. The value of investments can both increase and decrease and an investor may lose all of their invested capital. Under no circumstances shall the Company have any liability to any person or entity for any loss or damage in whole or part caused by, resulting from or relating to any transactions in CFDs. © 2008—2019, Exness
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