Just a few weeks ago, when the coronavirus crisis was beginning to wash through the nation’s psyche, there were dire predictions about long-term economic implications and the fallout for residential property markets may have seemed bleak.
Major financiers – normally measured and conservative in their observations – were leading the doomsayers. According to one report, Commonwealth Bank modelling predicted property price falls between 11 and 32 per cent by the end of 2022. In the same story ANZ and NAB were both calling drops of over 10 per cent.
But fast forward to today and the numbers tell a far different story, with many of the bears pausing to reassess and adopt a more bullish stance.
Could it be we are already at the bottom of the post-COVID market cycle?
The influence of sentiment
Much of the bad news delivered at the start of the crisis drove an environment of uncertainty.
Granted, there are measurables that provide indications of future market direction, however most futurists apply one important caveat – there are no guarantees in life.
I once heard a property valuer muse, “Economists! They get it right about half the time.”
So, if the metrics tell a story without certainty, what actually drives property prices?
Well – it’s confidence. Confidence plays a huge part in future direction. It is a self-perpetuating emotion in the investment landscape. When it is high, buyers will pay a touch more to secure a property confident that values will continue rising. Conversely, low confidence will see sellers flood the market, reasoning that they need to secure their price before an inevitable plummet.
So, at the start of this crisis when everyone was feeling the anguish of uncertainty and headlines were blaring infection rates and job loses, most observers could see nothing but a dim future.
What’s happened since
A number of factors since the start of this event have prevented property-value Armageddon so far. For a start, prices did not immediately fall off a cliff, and the free market we enjoy in Australia is the very reason why.
You see, when we were feeling a bit scared about what was to come, those planning to sell decided to hold off… which meant fewer listings on the market.
So, while demand for property has not subsided, supply has dropped – and the way these two factors interact in our system has ensured that prices in certain locations have continued to stay strong.
According to CoreLogic for the month to June 7, there was only 0.5 per cent reduction in property values across Sydney. Hardly a sign of widespread panic in what should have been our darkest 30 days… if you had listened to the pundits.
In fact, for the year to date, property values were up 14.4 per cent while listings were down 22.7 per cent. Further testament as to the resilience of real estate.
Secondly, we are now at the lowest interest rate set by the RBA in recorded history and money has never been cheaper to borrow.
So, for those with access to funds, investing in property is a no-brainer. The fundamentals of the asset – i.e. long-term growth and comparatively strong gross yields – make it extraordinarily attractive.
For homebuyers, low rates equal increased buying power too.
Finally – the progressive easing of restrictions in the wake of ongoing low infection rates has helped the Australian population breathe a collective sigh of relief. Perhaps things will not be as bad as first predicted?
Our old friend, confidence, returns once more.
Is now the time to buy?
The answer to this is mixed.
For starters, no two markets move at the same pace. There will be some locations and property types offering very good values at present, while others will not and are at risk of values softening.
I think the key lesson to take away from the current circumstances is this – the time to buy is when it is most appropriate for you.
If your plan is to purchase a property – either for home or investment – and keep it for the long term, it does not pay to try and ‘pick the market’. Many years of experience in this field has taught me that buying to suit the cycle is speculative and a fool’s errand.
So, do not wait around for prices to ‘drop off a cliff’. Instead, contact a buyers’ agent to discuss how they can unearth a property that not only suits your needs today, but has excellent long-term upside to ensure a secure financial future for you and yours.