What can we learn from previous downturns?
Comparing the current market with the 1970s downturn.

Without question, the UK property industry is in a downturn. Arguably, the US economy is in recession, and there are concerns that the UK economy may be heading in a similar direction.

Whilst we experienced previous major downturns in early 1990s, early 1980 and mid 1970s, commentators are seeing greater similarities with the downturn of the mid 1970s, some of them beguiling. So what are the comparisons between 1970s and today?

• Steep increases in the oil price (over 1973/74 oil price rose by approx 400%).
• Secondary banking crisis - we have had Northern Rock and credit crunch, in 1973 the onset of the banking crisis was bailed out by the then Bank of England.
• Hyper-inflation - in the mid 1970s RPI reached 26%, this time round we could see RPI at double figures. The 20 year RPI swap rate is currently standing at 3.83%, which implies that the markets are forecasting high levels of inflation long term.
• Stagflation - the phenomenon of inflation with the absence of economic growth (ie stagnation) occurred in 1970s, commentators today believe we could also be facing this.
• Dying days of unpopular government.
• Sharp softening of investment yields - in 1973 yields were at 5% compared to 1974 at 7.5% - led to development schemes becoming unviable and damage to business confidence.

Although there are close similarities between now and the downturn of the mid 1970s, certain things are different this time.

• Lower Base Rate environment - over 1973 to 1976 the equivalent of Base Rate stood at between 10.5% and 13% throughout that period - imagine that!
• UK has a much stronger national economy. Remember prior to Margaret Thatcher, the UK was regarded as 'the sick man of Europe'.
• Markets today are very much better researched and understood.
• There is a greater level of trading activity across the occupational and investment markets
  Properties are of better quality.

Commentators believe that the markets will recover more quickly than the four year period following the 1973/74 downturn and an arguably longer period in the early 1990s. The question is, how long? We may be past the worst, but probably there is bad news still to come. It is expected that normal market conditions will be restored over the next 18 months. However, experts are not forecasting significant growth in values much before 2011.