Coronavirus has made it impossible to value property

    1 April 2020

    If you want to know how much damage your share portfolio has suffered from the coronavirus crisis it is easy enough – it will take you a minute or so to look it up.     The FTSE100, for example, is currently down around 25 percent since mid-February, though it did sink to a decline of over 30 percent before last week’s rally.

    But what about your house? Property feels so much safer an investment at times such as these. However much the stockmarket crashes, you will still be able to touch and feel your house, or other property assets. It is a different story if your house falls victim to a disaster like last month’s floods, of course, but in times of general market panic, property feels as solid an investment as they come.

    But it is all a bit illusory. It simply isn’t possible to value property at the moment.    Estate agents have shut their doors,  developers have locked their showhomes. The government has implored people not to complete the sale of their homes but put it off until the lockdown is over. There is no housing market – it has been suspended.    When the market is operational again we might find prices 10, 20 percent lower.    There are housing indices coming out this week, but then they are always retrospective. As for next month, there will be little data with which to compile a house price index – or a meaningful one at least. Given the gyrations in house price indices in recent months it is questionable whether the likes of the Halifax and Nationwide have enough data to provide accurate indices at the best of times; we’re certainly not going to get much in the way of good data over the next few months.

    The housing market is often described as being less volatile than the stock market, but it might be more accurate to say that it is simply less liquid than the stock market.   You can sell you shares instantly – or at least you can from Monday to Friday during trading hours. If you want to sell your house it will take you a week or so to get it on the market, then you may have to sit back and wait weeks for an offer – if an offer turns up at all. It would be a very different matter if we all bought and sold houses via an online trading platform. If we did, we would find the value of our home similarly rising and falling throughout the day – and crashing as buyers dried up as they have in the past few weeks.

    By contrast, if we bought and sold shares in the way we do property, we would find their value evening out. If, say, you put your stake in Shell up for sale with a mind to accepting the best offer you received over the next three months you would very likely get a better price than you would if decided to sell them in the next five minutes. It is indeed, possible to do this by setting a level at which they will automatically be traded.

    We feel safer investing in property simply because we don’t know its value at any one moment. There is nothing about property intrinsically which means it is more likely to hold its value in volatile times. And then, of course, there is the issue of putting too many of your eggs in one basket. To buy a property means putting down a huge stake in one asset and accepting the risk that entails (ie flooding, discovering plans to build HS2 through its garden etc). With shares, you can spread your risk among hundreds of companies, some of which might even do quite well in a recession  – which might make you feel just a little bit better as you watch your investments turn red.