Here’s why people are predicting a property market crash

The property market is going to crash!

That's the type of headline the media keeps using to draw you in, isn't it?

The media loves to tell us that the property market will crash and gives plenty of air time to commentators with this view.

Now there’s nothing new about this.

In fact part of this is natural.

We’ve evolved to treat threats as more urgent than opportunities.

Warren Buffett wisely said: “In order to succeed, you must first survive.”

But this newfound pessimism about our property markets due to rising inflation and rising interest rates takes things to a different level.

I’ve found that if you say there’s going to be a property downturn and you’ll get retweeted.

If you say we’ll have a big downturn and newspapers will quote you.

But if you say we’re nearing the next Global Financial Crisis and that property values will fall 30 per cent and you’ll get on Television.

However, if you mention that good times are ahead, that most property submarkets will finish the year higher than they started, or that our property markets are going to correct, but they are not going to crash, a common reaction from commentators and spectators alike is that you are either a salesman or you don’t understand the true risks.

Here are 3 thoughts about what’s going on here.

1. Money is universal

So if something bad happens it tends to affect everyone, albeit in different ways.

Now that isn’t true of, say, the weather.

A hurricane barreling down on far north Queensland poses no direct risk to 95% of Australians.

But a recession barrelling down on the economy could impact every single person – including you, so you pay attention.

And of course, this also applies to the property market where around seventy per cent of Australian households own or are paying off their home.

2. Pessimism requires action

Bad news means you may have to sell, or run away, or hide!

On the other hand, optimism is mostly a call to stay the course.

It’s not nearly as urgent.

3. There’s a lot of money to be made in the property advice industry

Currently, there is no regulation of the property investment advice industry and while there are some very professional people and organisations around to help investors, because of the potentially large amounts of money involved the property advice industry has attracted an army of truth-benders promising the moon.

A big enough commission can convince even honest, law-abiding salespeople that the dud properties (we’re looking at you off the plan apartments and house and land packages) they are offering are in their customers’ best interests.

So they promote optimism with stories like properties never drop in value, or (all) properties double in value every ten years, or the tax depreciation and lack of maintenance of your new apartment make it a great investment.

And over the years too many people have been bamboozled by these property spruikers' version of optimism.

By the way…most promotions of optimism are realistic

But, of course, not all are.

Just so you understand what optimism is — real optimists don’t believe that everything will be great.

That’s complacency.

Optimism is a belief that the odds of a good outcome are in your favour over time, even when there will be setbacks along the way.

I’ve read that the simple idea that most people wake up in the morning trying to make things a little better and more productive than wake up looking to cause trouble is the foundation of optimism.

Now that’s not too complicated.

But it’s not guaranteed, either.

It’s just the most reasonable bet for most people.

So don’t become a property pessimist, despite what the media tries to sell you.

Instead, become a property realist.

NOW READ: How to spot a property spruiker from an advisor

About Michael Yardney Michael is a director of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and one of Australia's 50 most influential Thought Leaders. His opinions are regularly featured in the media.