How do you like change? If you’re like most Australians, you probably prefer the certainty of the status quo, but there are some important changes taking place in our property markets that all investors must understand.
You see…there a number of interesting things going on in our property markets at present and a lot has to do with our levels of confidence.
We’re not moving house as often.
The average Australian home owner now stays put for nine years, according to data to RP Data. That’s up from an average of 7.6 years a few decades ago. And it’s much the same for apartments – the average hold period has risen to 7.7 years from about six years in 2000.
RP Data research analyst Cameron Kusher suggests: “It appears that home owners are increasingly likely to keep their current properties rather than upgrade due to the significant cost.”
He believes one reason for the drop in housing turnover is that affordability remains an obstacle for many would-be buyers, curbing potential demand. Mr. Kusher also blamed high stamp duty for making home owners less keen to change their residence.
I think there’s more to it than that.
As I see it, when we feel wealthy many of us like trading up and buying a bigger, more expensive home – even if we don’t really need more space. It’s a great feeling during property booms thinking our home, our castle, is increasing in value.
On the other hand, in our current markets where the price of the average Australian home is in some cases falling and at best remaining flat, we tend to stay put. And if we need to upgrade we’re more likely to renovate our existing dwelling.
According to RPData, Melbourne led the nation in the average time people remain in their houses before selling (10.4 years up from 9.9 years 12 months earlier).
In Sydney, the average holding period was 9.8 years (up from 9.5 years 12 months ago) and over the same period in Brisbane, the average time increased to 9.1 years from 8.4 years. In Perth the hold time extended to an average of 7.9 years from 7.4 years, while in Canberra it extended to 8.7 years from 8.1 years.
We’re saving our pennies.
The other big change happening is that we’re saving, not spending. We’re paying down our credit card debts rather than using our homes like an ATM. And we’re renovating rather than moving house.
Property analyst Michael Matusik put it well when he said we are becoming more prudent.
But such a mindset comes at a cost. Property sales are down by a third against the past decade and property values have fallen a bit.
Matusik explains that in addition to prudence, we are buying different things – services, not goods.
He suggests that maybe we already have many of the goods we really need, but when a society ages it uses more services. This is already happening and is best shown in the health sector, where new employment is up 260,000 since 2008. This is twice as many new jobs as in mining!
It’s affecting our construction industry.
Despite Australia’s population growth increasing by 394,200 people or 1.8 per cent during 2012, which is higher than most developed countries) our prudence and the fact that we are staying in our homes longer has put our housing construction industry into a tail spin.
It’s also affecting property investment sentiment.
In a recent report entitled ‘Households’ Appetite for Financial Risk’ the Reserve Bank noted a change in household behaviour towards investments, including property.
They commented: “Surveys show a significant increase in the share of people nominating deposits and paying down debt as the ‘wisest place’ for saving and a decline in the share nominating equities and real estate.”
So what should a property investor do?
Property cycles, in fact all economic cycles, are driven by fear and greed. While it’s important not to trivialize the extent of the changes that are occurring, it’s equally important to remember that every cycle brings downturns and times of opportunity.
In my experience, difficult economic times offer outstanding opportunities for those who are prepared.
If the “end of the world as we know it” merchants are wrong – and they always are – then your decision to take prudent action when all around you are fearful, and to invest when everyone else thinks it’s crazy, will prove to be the kind of insight that truly great investors apply.
I don’t see us having a property market crash in Australia because our economy is doing well, our interest rates are relatively low, our population is growing and unemployment is low, we have a sound banking system and we are at the beginning of the mother of all resources booms.
Unfortunately the current world economic problems won’t go away quickly, and we are entering a new era in the financial markets. But this is not a time to panic or make rash emotional decisions. It is a time to learn from history and control your financial future by investing wisely.
And guess what? While the optimists, pessimists and realists will argue whether the glass is half full or empty, the opportunist are going to drink!
Now if you want to really get ahead of the pack and make the most of your property investment, I recommend you join me for 3 days at my annual “Property Renovations and Development Workshop” that I’ll be holding in October.
It’s Australia’s longest running, advanced property training and it will be your chance to invest 3 powerful days and learn renovation and development strategies that experienced property experts are using around Australia to “manufacture” capital growth and generate strong rental returns, so that they can win in today’s challenging property markets.
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