How do you pick the turning point of the property market? And are we there yet?
With so many mixed messages in the media today, I’m going to spend today’s show explaining my thoughts about what’s ahead for the property market so that at the end of the show you’ll have a better idea of what’s to come.
I believe there’s a window of opportunity before we have what I call a “perfect storm of influences” that will create strong capital growth in our property markets.
And before you say “oh, Michael’s an eternal optimist,” stay with me because I want to share with you what locations are going to outperform moving forward and what type of properties will be popular post-pandemic.
And of course, I also have a mindset message to share with you.
The messages in the media have changed in recent times.
Today the common theme is that the property market will turn later this year or early next year, with many asking, “have we reached the market bottom yet?”
But as they say – no one rings a bell when we reach the bottom, so how do you pick the turning point in the property market?
If you’re a home buyer or property investor and you have a secure job and your finance organized, now is an ideal time to purchase your next property countercyclically knowing your downside is minimized and your upside is maximized.
However, here are some of the indicators the research team at Metropole watch carefully looking for a signal that the market could be turning.
- The economic fundamentals
Our property market doesn’t work in isolation, so we keep an eye on the macroeconomic factors such as the world economy and Australia’s economy.
We’re probably out of the recession by now but won’t know the official figures for some months yet.
Recognizing that our property markets are driven by the availability of credit we keep track of the ABS data on credit growth which is a leading indicator, turning positive before the markets do.
Finance approvals are moving in the right direction, and the recent announcement of sweeping changes to remove overly restrictive lending rules will give more people access to easier credit.
At the same time many Australians are saving more than they have for a long time and this, together will historically low-interest rates, will encourage more Australians to buy their first home, upgrade their home or purchase an investment property.
- Market Sentiment
Increasing consumer and business sentiment point to good times ahead.
- Supply and demand
While Australia’s population growth will stall in the short term due to lack of immigration, there is currently a lack of good quality property on the market.
A-grade homes and investment-grade properties are selling quickly due to the normal flight to quality which happens after economic shocks.
On the other hand, there is an oversupply of apartments in some locations, particularly in our CBD’s, due to the lack of buyer interest from investors and tenant interest in the absence of overseas students and visitors.
- Housing credit growth
- Google and Property Portal Search volumes
- Days on Market and Vendor Discounting
- Asking Prices
- Auction clearance rates
There will be a perfect storm leading to a period of strong property price growth in the second half of 2021 and into 2022 due to the following:
- Federal Government spending, initiatives, and infrastructure projects
- State Government spending and infrastructure initiatives
- Historically low interest rates
- The security that interest rates will remain low for a number of years
- Easing of credit approval criteria
- A return of international demand for Australian property
- A return of immigration and students to Australia is also possible
This means that there will be a window of opportunity between now and the second half of 2021 for savvy investors to really amplify their wealth position.
There hasn’t really been as good a time to buy counter-cyclically for well over a decade.
But be careful – our property markets will remain fragmented and not all properties will make good investments.
As always correct property selection will be critical.
We’re going to have a two-tier market. Higher-end properties, more expensive properties in middle and inner rings of capital cities are going to increase more.
The right type of property is going to be different than it was before the pandemic. Some will pay more for properties with pandemic appeal.
Apartment living might fall out of favor. Standalone dwellings that easily allow for reducing contact will be in demand.
Low-rise, low-density apartments, what we used to call flats, might be in demand.
People will pay a premium for the ability to have social isolation. Buyers will also want to be able to separate work and living space.
That may mean a separate home office or Zoom room.
Neighborhoods will also be important. Some people will move to regional Australia for more space, but the majority will want to stay in capital cities – but in lifestyle or destination locations.
The 20-minute neighborhood will become important – people want schools, shopping, jobs, and services they use within 20 minutes of their homes.
“My suggestion is, of course, going to be, don’t even try and pick the bottom, because even the smartest economists armed with all the data can’t do that.” – Michael Yardney
“The cloud of uncertainty caused by the Coronavirus Cocoon that we were forced to hide in for a while is now slowly lifting.” – Michael Yardney
“The media always gives you mixed messages at times of market change.” – Michael Yardney
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