[Podcast] Is it time to be fearful or greedy in property in 2021?

What’s ahead for our property markets this year? Is it time to be fearful or time to be greedy?

We survived 2020, and 2021 is going to be another interesting year with a lot of positive things happening, but there’s no doubt will have our share of challenging times, because even though we are over the recession there it will still be fallout from the recession to deal with, and clearly, we will keep getting reminders about coronavirus coming out of the blue.

And every year there’s an unexpected X Factor– I don’t know what it will be otherwise it wouldn’t be an X factor, but hopefully my discussion today will give you some clarity and direction forward to hitting property.

However, there is one thing that I can assure you will happen this year. The typical property pessimists will be back again telling us our property market is going to crash.

So today I share with you my thoughts or the short and long term prospects for our property markets.

And in my mindset moment today I’m going to teach you one of the most useful lessons you can pass on to your children and grandchildren, and even if you don’t have any or are not planning to have any, this lesson will be critical for you if you want to obtain financial freedom.

What should you do in the current "interesting" property markets?

I know many investors are confused with concerns remaining about the Coronavirus, high unemployment and the many mixed messages forecasting what's ahead for our economy and our property markets.

I've noticed two types of emotion in those interested in property:

1. Last year as it became clear our markets wouldn't crash like some property pessimists predicted, FOBE was the predominant sentiment - Fear Of Buying too Early - home buyers and investors trying to time the market wondering "what if prices do fall further?"
2. Now FOMO (Fear Of Missing Out) is creeping back as house prices are rising around Australia.

In fact, master investor Warren Buffet advised: “I'll tell you how to become rich.... Be fearful when others are greedy and be greedy when others are fearful.”

The two significant structural events that caused the massive rise in property values over the last three decades were: 

1. The Reserve Bank kept inflation within a narrow band meaning interest rates could fall at a time when time banks became deregulated and this allowed new non-bank lenders like Aussie John Symond to make cheap finance available for borrowers and over time interest rates kept falling and credit was easily available.
2. At the same time wages grew and there were more two-income households. This allowed more Australian families to buy new homes or upgrade their existing homes as their families grew.

These factors won't carry our markets forward in the future, in fact they played out a few years ago and haven't been relevant for much the last decade.

• We are currently in a low inflationary, low interest rate environment (not only in Australia but around the world) and there is really no room to lower interest rates.
• The effect of the extra spending power of low interest rates has washed its way through the system.
• We are now in a period of lower wages growth and more part-time jobs so it's unlikely that the average Australian family will have more cash in their pockets to spend on property
• There is still economic fallout from the recession we decided to have.

Here's why I believe property values will increase in the short term.

The big game changer that will bolster our property markets moving forward is the anticipated loosening of restrictions on banks’ lending practices in March this year which will give the average home buyer and property investor significantly more borrowing capacity.

More than that, there is a perfect storm of positive factors developing for our property markets – a confluence of multiple growth drivers which will propel our property markets into 2021 and 2022:

• Our economy is improving and moving forward further jobs creation, consumer confidence and business confidence (leading to spending and employment) will underpin our housing markets.
• Auction clearance rateshave been consistently strong in the last few months of 2020, not just in the two big auction capital of Melbourne and Sydney but around Australia.
• More buyers and sellers are in the market and transaction numbers have increased
• At the same time the banks are keen to write new business– another positive for our housing markets.
• Bank loan deferrals have been falling– there’s no chance of an avalanche of forced mortgagee sales as many were worried about.
• The latest rate cut and the “guarantee” of rates remaining low for at least 3 years, will give home buyers and investors’ confidence.

Why our property values are guaranteed to increase in the long term

While it’s important to understand that while many factors like interest rates, supply and demand and market confidence, affect a country’s property prices in the short term, in the long term prices are driven by two main factors:

1. Population growth, and
2. The wealth of the nation

Despite our international borders currently being closed, Australia's strong future population growth is a given and as a matter of fact so is our increasing wealth.

Then there's all the good economic news

If you're reading the general media you'd be forgiven for feeling a little pessimistic about the state of our nation.

The recession we experienced in 2020 wasn't due to a fundamental problem with our economy – it was our government putting the economy on hold to get a health problem under control.

But our economy is on the move again and likely to keep grow strongly over the next couple of years; and despite the geopolitical and trade challenges we will are likely to face, Australia's economy is well positioned to keep growing strongly.

The bottom line:

While nothing in life is guaranteed, if like me, you are confident that Australia has a prosperous future, and you agree that our population is going to keep increasing and that most of us are going to want to live in much the same parts of our lucky country; you can understand why I see a strong long-term future for our capital city property markets.

Sure there is a risk in buying property, but don’t forget there is also a different risk in not buying!

Links and Resources:

Michael Yardney

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Some of our favourite quotes from the show:

“It’s been said that the 2 most powerful emotions that drive markets are fear and greed.” – Michael Yardney

“I accept that some of the gains over the last three decades were related to structural changes that won’t be repeated.” – Michael Yardney

“Please excuse me if I remind you how COVID has made neighbourhoods more important than ever – location more than ever important.” – Michael Yardney

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