Around this time each year it is customary for those of us in the property industry to peer into the future in an attempt to predict what’s ahead for our housing markets in the coming year and beyond.
While making such forecasts is not an exact science, I can safely make five predictions that I am certain will be true for 2020.
1. Most predictions will be wrong!
My first prediction for the year is that it will be a bad year for those in the prediction business.
I’m sure this will be correct as most economic and property experts get it wrong despite being armed with all the research available in today’s information age.
The problem is that while the fundamentals (things like population growth, supply and demand, employment levels, interest rates, affordability and inflationary pressures) are easy to monitor; one overriding factor that the experts have difficulty quantifying is consumer sentiment and with regards to the property market – investor sentiment.
Currently sentiment is mixed.
While things are looking up for the property market, many Australians are concerned about the terrible devastation caused by the bushfires, our economy, their job security, al the problems happening around the world and the possibility of a recession here in Australia.
But just look back to this time last year, when at the beginning of 2019 consumer sentiment was the lowest it had been for decades.
Most of the things many of us feared back then didn’t eventuate, did they?
Things like an interest rate rise, a debt bomb driven property market Armageddon or significant tax changes for property investors
So following on from my first prediction…
2. Many things won’t happen and other will
Many of the predictions for 2020 won’t happen and a lot of things will happen this year that no forecaster thought to include in their predictions because market movements are far from an exact science.
Every year there is an “X factor” sometimes called a Back Swan event.
This is an unpredicted factor, either locally or from abroad, that impacts our markets either positively or negatively.
However, in retrospect, these unexpected events will seem to be the obvious consequences of the current economic and political environment.
Last year no one foresaw the “miracle” reelection of the Morrison government and I don’t remember anyone predicting 3 interest rate cuts.
And who would have though the Brexit saga or the trade war between China and the USA would not have been resolved.
Of course this year there are a whole lot of new and serious issues to be concerned about
3. Some forecasts will be right
I predict that a small number of the many economic and property forecasts for 2020 will accidentally come true and those who randomly predicted them will claim to be experts, despite the fact that it was the first time they got one of their hundreds of forecasts right and that they adjusted their forecasts over the year as circumstances unfolded.
4. I believe that most property investors will get it wrong this year
This one is simple –they always do!
And I’m not talking about those who fail to take action this year and wait for things to be just right before they get into the market, even though that will be a big mistake this year.
Just as it was last year as many home buyers and investors missed the bottom of the market
What I’m talking about is based on data I read from the Australian Housing and Urban Research Institute years ago, which shows that 20% of those who do invest in property sell up within the first 12 months and 50% sell within the first 5 years.
These failed investors will never gain the long term wealth creation benefits that property investing is all about.
5. Those who get it right will do very well
And my last “guaranteed” prediction is that those property investors who get it right will do very well out of real estate this year and set themselves up for the years ahead.
Now, the start of a new property cycle is when many investors will create lifetime wealth.
If you have a system, a great team of advisors, your finances organised and the right knowledge, now could be a great opportunity to buy good properties that will appreciate in value over the long term.
However not all investors who buy at this stage of the cycle will get it right
That’s because you can’t just buy any property and expect it to outperform in the long term.
As we’re working through a period of lower inflation, lower interest rates and lower wages growth, it is likely that the capital growth of many properties will be more subdued.
I know there are some pundits out there still predicting double digit capital growth for the Melbourne and Sydney property markets this year, but I can’t see that happening.
Our property markets are likely to be fragmented with some sectors experiencing strong growth and others languishing.
This means correct asset selection will be critical.
The key is to buy the right type of property, in the right location.
You need to buy an “investment grade” property below its intrinsic value.
And preferably one with a “twist” – something special about it – like value-add potential which allows you to manufacture capital growth through renovations or redevelopment.
Ideally you should look at purchasing in the inner and middle ring suburbs of our big 3 capital cities in locations that have a historical pattern of above average capital growth, regardless of the ups and downs of the property cycle.
Because the value of property in good locations will continue go increase in the future due to scarcity.
And the many factors that are underpinning our economy – economic growth, jobs growth, population growth, the shortage of the right type of property and infrastructure spending will also have a positive impact on this type of property.
A few more property predictions for 2020
Two major factors that will affect our property markets this year will be:
- The availability of finance and
- Consumer confidence
Property investment is a game of finance with some houses thrown in the middle.
Property investment is a game of finance with some houses thrown in the middle.
Those who didn’t realise this before, quickly learned this reality over the last couple of years as despite falling interest rates, the availability of finance particularly to property investors was restricted by limitations imposed on our banks by APRA.
While these restrictions have been loosened recently, if your property markets rebound as strongly as some predict they will, it is possible that APRA will once again tighten the screws and limit finance in particular to property investors.
And despite cheaper money, when consumers are nervous they tend to put their hands in your pocket and sit on the sideline rather than undertaking major transactions such as buying a new home or an investment property.
I have no doubt the property pessimists be there again this year trying to scare the pants off those looking to secure the future through owning residential real estate. If the media give these Negative Nellie’s too much airtime, or if the state of our economy worsens, negative consumer sentiment could slow down the growth of property markets.
However, on balance I see the value of well located capital city properties increasing in value buy 6 -7% next year with A grade homes and investment grade properties in our 3 big capital cities growing significantly faster than this.
Why am I so confident about this?
Because history is a great teacher!
And history tells us that over time, the value of well located capital city properties always go up and investors who stay in the game for the long term always do well.
And the sceptics who like to warn investors away from real estate always get it wrong.
If you think back over time, the naysayers were always out in force when the property cycle market starts to rise telling us property is unaffordable and we’re getting caught up in a debt fuelled Ponzi Scheme.
I have been investing in property for well over forty years now and during that time I have been warned about a property crash on numerous occasions, including;
- Over the last few years when some experts chasing a headline told us property values would fall 40%, yet we’ve had the strongest recovery of our property markets in history.
- In 2010 -12 when the RBA raised interest rates to slow down the property boom of the time and our markets slumped till rates were eventually lowered again.
- In 2008 when the Global Financial Crisis rocked the world, many suggested property values in Australia were set to crash and we were all going to lose our jobs, but of course that never eventuated.
- In 2004, the property markets in Sydney and Melbourne housing values stalled, due to high interest rates that peaked in late 2003 but look what’s happened to property values in those cities since.
- Around the year 2000, there was a heap of negative press and worry about the impact of the GST that was being introduced in 2001. People said this new tax would destroy the housing market.
- In the early nineties, when interest rates peaked around 18% and the markets crashed, everyone said it was the end of Australian property wealth and it would all be downhill from there.
- In the late 1980’s when the catch cry was “property is so expensive our children will never be able to afford a property!”
As you look back it becomes clear that there is a cyclical pattern to our property markets with the media and “clever” commentators offering lots of reasons not to invest.
But the truth is, we have periods of prosperity and periods of slow or negative growth in the housing market – this has always been and will continue to be the case.
So the big question is…
What will 2020 bring your way in terms of wealth creation and the property markets?
Here’s one more prediction for you….
Most people reading this blog will do nothing different in 2020 than they did in the past.
How can you grow your success?
If you’re looking for independent advice, no one can help you quite like the independent property investment strategists at Metropole.
Remember the multi award winning team of property investment strategists at Metropole have no properties to sell, so their advice is unbiased.
Whether you are a beginner or a seasoned property investor, we would love to help you formulate an investment strategy or do a review of your existing portfolio, and help you take your property investment to the next level.
Please click here to organise a time for a chat. Or call us on 1300 METROPOLE
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So click here to find out all about these once a year events – you really can’t afford to miss out on all the updated and new information for this new stage of the property cycle.
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