The coronavirus pandemic has created one of the worst recessions the world has seen since the 1930’s Great Depression – but it was also shaping up to be one of the shortest.
Australia’s economy was already showing signs of bouncing back, following a “very deep contraction” but then the threat of a second wave of coronavirus hit us.
What would a serious second wave of coronavirus due to our economy and our property markets?
That’s what I want to discuss with you today.
While I’m optimistic about the future, I realize that unemployment and underemployment rates are set to take years to return to pre-coronavirus levels.
Our economy will grow more slowly this year and next, but a significant second wave of coronavirus will do some damage to our consumer confidence and slow everything down again, so I’ll explain my thoughts about this in more detail today.
Then I’d like to share an important message from one of my mentors, Jim Rohn, that will help you give you some inspiration to work through these challenging times.
What would a second wave of Coronavirus do to our property markets?
Our property markets have been remarkably resilient so far, but how would a significant second wave of coronavirus affect our housing markets?
Well…If we look back there are a few lessons we can learn to help us better understand what’s ahead.
In spite of the Coronavirus induced economic downturn Australian property values didn’t crash as the doomsayers predicted and our economy rebounded more quickly than many expected.
At the same time, rental relief packages have kept tenants in their homes, and mortgage support has meant that there have been very few forced sales.
However, home buyers and sellers went on strike choosing to postpone their next move until more certainty returned to the market and this contributed to a 32.4% drop in property sales volumes over April.
Then as social distancing measures eased and consumer confidence returned, property transaction numbers experienced a strong recovery in May and June.
Initially, it looked like we were going to experience a deep, but short, economic recession and that our property markets would weather the storm defying the 10%-20% fall in values some had predicted.
But if Australia is hit by a significant “second wave” of coronavirus cases it would postpone the economic recovery that many economists expected in the second half of 2020.
So what’s ahead?
Of course, no one really knows what’s going to happen to property values, so it’s important to analyze and anticipate possibilities and probabilities.
A significant second wave of Coronavirus and a continuing barrage of negative news in the media about our health, unemployment, and businesses going bust is likely to dampen consumer confidence further and have a negative impact on our property markets.
But if a second wave of infection overtakes us, we can expect further government support.
The government and the Reserve Bank have clearly stated that they will do anything and everything they can to support our economy and minimize the impact of the coronavirus on our businesses and our economy.
What about property values?
If a second wave of coronavirus causes further lockdowns or more social distancing restrictions, our property markets will slow down as they did in March and April.
Both buyers and sellers will go on strike until the picture becomes clearer.
But like earlier this year, property values won’t plummet, because it’s unlikely that there will be a flood of properties for sale.
At the moment I’m seeing three levels of buyer property sentiment out there.
- The Negative Nellies who are worried that property prices are going to crash and all they can think of is doom and gloom.
- Those who are bunkering down, battening the hatches, and just waiting for news that this is all over.
- Those with a positive outlook who have a secure job and a long-term focus who is seeing great buying opportunities in the market when there is less competition and interest rates are the lowest of ever been in history.
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 investments 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.
What’s going to happen to our economy?
Yes, the health crisis has led to an economic shutdown, and some were concerned that this had the potential to create a major financial meltdown, but clearly that hasn’t happened.
Unfortunately, there is no roadmap to follow, so governments will need to quickly respond to changes in circumstances.
But most of the bright folks I’ve been following and talking with agree that Australia is in a better position than any other country in the world to work its way through the challenges ahead.
What else is likely to happen?
It has been said that up to 3 million Australians have changed their living habits because of Covid-19, with many young people moving back with their parents.
And this trend will likely continue, meaning our rental markets will continue languishing with fewer people seeking rental accommodation at a time when vacancy rates, particularly in our CBD’s and inner suburbs remain high.
At the same time, our banks will remain vigilant and continue to scrutinize all new loan applications carefully so if you’re looking to refinance your loans to the prevailing low interest rates or take on a new loan be prepared for long possessing delays and to answer many questions.
The banks will also offer further extensions to the repayment holidays given to borrowers with cash flow issues.
The bottom line.
In times of trouble, it’s important to retain a long term perspective.
Property is resilient – very different to share market. Most property is lived in, which means people will do away with many other luxuries before someone will sell their property, much less their home.
Links and Resources:
Some of our favourite quotes from the show:
“Not surprisingly there’s a strong relationship between how people feel about their finances and job security and the financial decisions they make.” – Michael Yardney
“It looks like we are going to have a stepwise recovery as our economy opens up in stages.” – Michael Yardney
“So if you’re one of the lucky ones, somebody who is still financially secure, why not consider this as a good opportunity to upgrade your home or buy the next investment property?” – Michael Yardney
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