The coronavirus crisis has transformed our markets back to buyers’ markets. But does that mean it’s a good time for you to buy property?
That’s what I’m going to discuss in today’s show, and in quite some detail.
Of course, like with most things in property, the answer is that it depends.
Are you buying a new home or an investment property? How secure is your job? How easy is it for you to get financing?
I’ve got a couple of interesting concepts that I’ll discuss during the podcast, but let me answer the question: yes, it’s a good time to buy property if you’re one of the lucky ones who remains financially secure.
Because if you buy well now, you could set yourself up for the growth that’s certainly going to come later this year.
But there are a lot of ifs and buts and maybes between now and then.
In this episode, I’ll give you more detail about what I see happening to the property market in the short and long-term, as well as some lessons we can learn from previous downturns.
Hopefully, at the end of this episode, you’ll have some more clarity about what’s ahead.
What’s ahead if you decide to purchase property?
Should I hold off and wait for property values to fall further?
What’s ahead for our economy and the property markets as Australia falls into recession?
These are the type of questions I’m regularly answering for our clients at Metropole and for the many journalists who have been asked me for my opinion.
And what I have been telling them is that our economy started the year with a little cold that progressed to the flu and now looks more like we have a case of economic pneumonia.
Based on my perspective having been involved in the property market for over 45 years, I believe the impact of this on our property market will ultimately be temporary.
Now, this view may be a little different from what others who are forecasting that property values will drop anywhere from 10 percent to 30 percent; but remember …this too shall pass.
What will happen to our property markets will depend upon how long we are in lockdown, how soon our economy picks up, the level of unemployment, and importantly the level of consumer confidence coming out of our recession, which will be a good barometer of all the above factors.
Of course, if Australia experiences are multiyear downturn, caused by the world economy imploding, then, of course, property values would drop considerably.
I know some doomsayers are predicting this, but these are not the type of forecasts made by the credible economists I have been following.
What will be the short-term effects of coronavirus on Australia’s housing markets?
Clearly our housing markets won’t be immune to the Coronavirus economic fallout, but the impact on property values will depend on how long it will take to contain the virus.
Transaction levels will be significantly impacted over the next two to three months with discretionary sellers staying out of the market.
It really makes no sense to put your property on the market for sale at this time unless you really need to.
However, there will always be nondiscretionary buyers and sellers who do need to transact over the next little while.
It is likely that sellers will discount the price of their properties to conclude a sale, while buyers will take advantage of this to nab a bargain
But this doesn’t mean property values will plummet.
In fact, as an asset class, bricks and mortar has performed exceptionally well during previous economic shocks.
This time around, with the banks giving mortgage deferments or holidays, it is unlikely that we will have a large number of forced or mortgagee sales that could undermine market confidence.
Many commentators are trying to compare the current markets predict how the current markets are going to perform based on how our property markets performed during previous economic downturns such as the Global Financial Crisis in 2008 or the recession of the early 1990s.
However, unlike previous downturns that were essentially financially lead, this downturn is a medical problem that morphed in an economic issue because of a short-term shutdown of our economy which has led to a supply-side downturn (even though we’d like to, we can’t go out and buy goods as their supply is limited because the shops are closed) rather than a lack of demand-driven downturn.
Because of this and based on the predicted pace of the post-recession recovery, I would expect the pandemic to have a more limited and shorter-lived impact on house prices than either the early-1990s recession or the Global Financial Crisis.
In the short term:
- “Investment-grade” properties and A grade (above average) homes could fall in value by around -5%
- B grade (average) homes could fall in value by up -10%,
- C grade (less than perfect) will be the hardest hit as there will be a flight to quality.
The worst affected residential markets will be:
- Apartments in high-rise towers – in fact, this is these properties are likely to be out of favor for quite some time.
- Off the plan apartments and poor quality investment stock (as opposed to investment-grade) apartments, particularly those close to universities.
- Outer suburban new housing estates house and land packages, where young families are likely to have overextended themselves financially and with many people will be out of work for a while
- Properties in the blue-collar areas.
On the positive side, households and property investors whose incomes remain stable and secure will be able to take advantage of historically low interest rates.
This should support a return to stronger levels of price growth in the medium term.
The largest and most direct industry shocks from the coronavirus are expected in:
- Tourism, local restrictions will ease up before and overseas travel restrictions may take some time to lift;
- Hospitality, where social distancing leads to a decline in café, bar and restaurant patronage;
- Education, due to fewer foreign students being able to travel;
- Retail, which will be dragged down by low consumer confidence levels; and,
- Recreation, theatres, cinemas, and art galleries have closed down.
However, I’m comfortable with the underlying long term fundamentals supporting our property markets in the medium to long term.
So is now a good time to buy property?
With property prices and competition falling away, the short answer is yes — if you’re one of the lucky ones who remains financially secure.
One of the major lessons I have learned from previous downturns is the importance of taking a long-term perspective which always outsmarts short-term reactive thinking.
And for mine, it’s always property fundamentals that really matter and drive our markets in the long term.
Links and Resources:
Some of our favourite quotes from the show:
“We’re currently experiencing something like a terrorist attack which has delivered a short sharp blow to our economy rather than experiencing a long drawn out war.” – Michael Yardney
“But the economy is likely to rebound at the end of this year, in the 4th quarter of this year or early next year, at which time we are likely to experience a perfect storm for property.” – Michael Yardney
“There is no doubt there will be opportunities in the market for those who are willing to go against the crowd.” – Michael Yardney
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