Who’s right about the property markets? The pessimists or the optimists?
In today's Podcast you'll find out.
Following a couple of booming years where property values in Melbourne and Sydney experienced double-digit capital growth year on year, our markets have moved to the next stage of the property cycle where price growth has slowed in some cities and property values have fallen – particularly in Sydney and Melbourne.
Not surprisingly this is allowing some of the property pessimists on the internet forums to rub their hands in glee saying, “I told you so.”
Sure, our property markets are experiencing a slowdown, but values are still rising in many locations, and yes prices are falling a little in some locations, however, we’re not in for a property crash and in today’s show I’m going to chat with Pete Wargent to explain why we’re not worried about a property market meltdown.
Why our property markets won’t crash
One of the most frequent questions I’m asked at present is “how long will this property market downturn last?”
Another one is – “Will our property markets crash?”
So if you are considering investing in property, or about to buy a home, it would be good to know the answer to these questions.
But firstly, remember there is not one property market around Australia.
Our markets are fragmented – not only is each state at its own stage of its property cycle, but within each state different segments of the markets are behaving differently.
If there isn’t one market, it means it doesn’t really make much sense to say the “Australian property market” will crash, to look at this topic in a bit more detail I’ve got Pete Wargent on the line.
What could cause a crash as opposed to an orderly drop in prices
We’re experiencing a soft landing. On the other hand, a true collapse in house prices would require some large external shock such as:
- Unemployment high enough to trigger a wave of forced home sales.
- High-interest rates that would cause a raft of homeowners to default on their mortgages.
- Severe credit squeeze
- A severe recession that would cripple our economy.
- A significant oversupply of property.
- A halt to the rising population.
- Changes to government legislation making property investment less favourable.
The fundamentals underpinning our markets
- World economy behaving itself
- Australian economy growing at around 3%
- No likelihood of an interest rate rise any time soon
- Our financial system/banks are in good shape
- Employment growth
- Strong population growth at a time when new constructions are slowing down
- Have not had a “crash” since the late 1890’s – we have corrections on a regular basis
- Underpinned by the high percentage of homeowners
- More families at household formation age (esp immigrants
- Oversupply of property limited to certain locations only – lots of secondary property and a shortage of A-grade property
- No real concern about the level of household debt – on the whole, it’s in the hands of those that can afford it
- No real concern about Interest only loans converting to P&I
- A culture of home ownership – 70% of us own or are paying off our homes
The bottom line:
For a number of years now bubblers and doomsayers have been predicting the bursting of Australia’s property bubble.
They’ve told us we’re in denial about the impending gloom blinded by the consistent performance of our property markets over the last few years.
We’ve just explained what could cause a property market collapse, but we’ve also explained why we don’t think we should be worried.
However, we need to be vigilant.
As investors, we need to be aware of what’s happening in the world’s economies as Australia does not operate in isolation.
And needs to keep cognizant of what’s happening in our property markets
Remember there is not one property market and some locations including Brisbane are going to outperform.
BIS Oxford predicts an 11% increase in Brisbane property values by 2021.
Strategic investors will take advantage of the opportunities our property markets will offer over the next couple of years maximising their upsides while protecting their downsides.
Some of our favourite quotes from the show:
“One of the things that’s been pushing up our property markets has been the rising population that’s been underpinning it, particularly in Melbourne and Sydney.” –Michael Yardney
“This is just part of the property cycle. Don’t change your long-term strategy of wealth creation because of a short-term blip in the market.” –Michael Yardney
“If you’ve got the cash flow, you’re going to get through.” –Michael Yardney
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