Hallelujah: our saviour: the “credit crunch”.

Posted on December 7, 2008 in 3plus1, Australia, Cashflow, Educational blog, Emotions, International, News, Property, South Africa, UK

Hey guys,

It might seem like a bit of a weird headline, but I actually think that in many ways the credit crunch has saved many investors from the pain of rising interest rates and the cash flow problems that go along with it.

It’s brought relief to many investors across the country and the team has received lots of calls from our investors who for the first time in the past two years are encouraged that their overall cash flow is looking much healthier than it did in say August 2008.

We have also seen the mortgage market bounce back in the past 2 months starting in October 2008. You still need to have considerable amounts of money for the deposits, but nonetheless, we’ve seen properties fly through to completion from October onwards.

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It’s all because basic supply and demand took over and inflation came to an abrupt halt as the Bank of England dropped rates some 3% in 6 weeks. It was unprecedented in recent history and it signalled the beginning of the end of the credit crunch.

But if the credit crunch hadn’t have taken hold, interest rates could have easily gone a lot higher than they did. It also means a lot of investors now have cash flow positive properties on a monthly basis rather than an ever increasing shortfall. It has also taken the focus off any potential stagflation — which is effectively a recession with high levels of inflation which is what happened in the UK in the 70s.

So, While the ‘credit crunch’ dust clears, it’s clear that the common signs of recession have hit us too. The main one being Unemployment, with some 11,000 people a week losing their jobs. Now before you think the sky is falling in we are actually coming from a very low unemployment rate and whilst it’s terrible for those that lose their jobs it also is necessary for the overheating market to correct itself.

The most important thing to consider now is that the credit crunch has saved our cash flows and the signs are saying that this will be a rather short recession despite all of the doomsayers.

I’ll have a bit more to say about this in my next market commentary.

Live with passion,

Brett Alegre-Wood