It’s a bold statement, but it’s true.
For some of you who are reading along right now, 2020 is absolutely the worst possible time you could consider buying a property.
In fact for these people, moving forward with a real estate purchase this year would have the potential to cripple them financially, not just now but well into the future.
Sounds dramatic, right?
It is… but here’s the truth.
This statement rings true in 2020.
It was also true last year.
And the year before that.
And in 2015, 2010, 1985, 1972…
The reality of real estate is that…
There is no “best” time or “worst” time to buy property
It’s likely that you’ve heard me talk about the drivers of property price growth over the years.
There are so many things that determine a property’s price performance and growth trajectory, many of which are well outside of your control, and which also have nothing to do with the property itself.
These include, but are not limited to:
- The economy – the performance and state of the broader economy impacts people’s ability to buy and sell property as well as …
- Consumer Confidence – when people feel comfortable about their financial situation and their future job prospects are more likely to make big purchases like moving home or buying investment property.
- Employment levels – if the community at large is experiencing high levels of unemployment, then fewer people can afford to pay a mortgage, which reduces demand for property
- Government policy – aspects to do with tax, depreciation and home ownership grants will work to boost or reduce demand for property, particular new property in recent years, which is where the federal government’s primary agenda has been.
- Population growth – or household formation to be more exact as when more people moving into an area equals more demand for housing, whether it’s to buy or rent.
- Local Demographics – things like average incomes, average age, household structure, crime rates and employment opportunities.
- Supply – The basic economic principle of supply and demand is a fundamental property market driver of price growth.
- Availability of credit – property investment is a game of finance with some houses thrown in the middle, but even owner occupier demand is very much driven by the availability of finance and the cost of money, in other words interest rates.
Now, as a result of these factors – which are by no means an exhaustive list, but they give you a general indication of some of the major influences on property prices – we have what’s known as booming or busting property markets.
Between 2016 and 2018, values soared in these two cities, allowing those who owned property to amass small fortunes along the way.
But it’s important to know that just because “Sydney boomed”, that doesn’t mean that ALL of Sydney boomed.
It means that overall, the majority of properties across the city experienced an increase in value.
However, there are always some areas, pockets, streets and individual houses that perform better or worse than the average.
For example, the value of the apartments in many of the high-rise, Legoland towers around Sydney languished as concerns about structural integrity, following the Opal Towers debacle tarred all new apartments with same brush.
Let me give you a different example
Let’s say a couple owned a property in a sought-after Sydney suburb in 2017.
They had purchased in 12 months earlier for $1.55m.
It’s right in the middle of a booming property market and sadly, the couple split up.
It’s a messy and contentious divorce, and both parties want to sell the home as quickly as possible so they can move on.
They also don’t want any looky-loo neighbours snooping through their home every weekend, and they don’t have the energy or appetite for a big, public marketing campaign.
So, they engage a real estate to sell the home privately/off market.
It reaches fewer potential buyers and drives less competition, but they secure a buyer within a week.
They sell the property for $1.6m in a hasty settlement and move on.
Had they taken the property to the open market – say, an auction – and a number of would-be buyers fell in love with the property, they could have sold for more money.
But their circumstances dictated a swift sale, so they accepted the price they got and moved on.
It could be the case that one street over, a couple own a very similar property.
They are planning to move in with their parents for six months while they build their next property, so they have no deadline or timeline pressures and they’re happy to wait for the right buyer to come along.
They list their home for auction, pay for an expensive but very high profile marketing campaign, and achieve a final sale price of $1.825m.
Two similar homes, two very different outcomes.
Neither is “right” or “wrong”, and this is the infuriating truth of real estate: there are no “definites.”
Just a series of educated guesses and informed choices, which – with the right expert guidance – can lead you towards making profitable decisions for your future.
When it comes to deciding the right time to buy or sell, at the end of the day, it’s our own personal situation as much as external factors that influence the best course of action we should take.
The fact is, any time could be the worst time for you personally to buy a property… or it could be the best time to buy
It truly depends on your own goals, budget, timeline, risk profile and circumstances as to whether 2020 is a good time to buy.
If you’ve just lost your job or your income is insecure in the current economic climate, then yes, this could be a risky time to commit to a mortgage; in fact, you’d struggle to get a loan.
However if you’re financially stable and have a deposit ready to go, then some might argue that with 2% mortgage rates and opportunities to negotiate strongly, 2020 could be the property buying opportunity of a lifetime.
What’s ahead for our property markets for the rest of 2020 and into next year?
That’s a common question people are asking now that our real estate markets have been hit by the triple threat of:
- The Coronavirus Pandemic
- A recession
- Social and political unrest around the world
And with a second wave of Coronavirus now upon us, particularly in Melbourne, many are wondering if those dire predictions of 20-30% falls for our property markets that were made earlier in the year by those property pessimists are now going to come true.
The simple answer is NO – our property markets are not going to crash – in fact they’ve remained remarkably resilient.
Sure there are problems in some of our rental markets and certain sectors of our real estate markets are suffering, but having invested in property for almost 50 years I’ve found that whenever there has been an economic threat, recession, interest rate spike, or credit squeeze, the residential markets always bounce back, usually more quickly than projected, demonstrating the resolve of the Australian community to maintain its embrace of real estate and homeownership.
Perspective is key through the COVID-19 crisis, and although Victoria and New South Wales are battling to contain a second wave of the virus, we can’t lose sight of the fact that Australia still has some of the lowest rates of death and infection in the world.
Our economy is also proving more resilient than those of our peers, and, barring a significant deterioration, should return to growth in the December quarter of 2020.
While there are still many challenges ahead for our economy and our property markets, there are also reasons to be optimistic about certain segments of the Australian property market, particularly in the long term.
While the underlying trend in property prices has continued to soften in the wake of the pandemic, but there are some positive trends emerging.
Since Australia’s international borders were closed on 22 March;
- Sydney prices have eased 2.0%,
- Melbourne have softened by 4.7%,
- Perth property values eased by 1.9%,
- Brisbane home values are broadly steady (-0.1%),
- Adelaide prices have risen 0.6%.
However, median property values are higher than they were 12 months ago in all our capital cities other than Perth, with Sydney +10.2% and Melbourne +6.1% over the last year.
Source:NAB August 31st 2020
The most likely outlook for property is for prices to fall modestly in some areas and be broadly steady in others, combined with a slow increase in transactions from weak levels.
If we look at what happened to property markets overseas once their Covid Cocoons were opened up, pent-up demand lead to stronger property market, in much the same should happen in Australia consumer confidence returns.
Now that we’re officially in recession, what can we expect moving forward?
As we move through the balance of this year and hopefully out of a recession we can expect:
- Higher Unemployment
There will be much higher unemployment, it will be harder to switch jobs, and it’s reasonable to expect more redundancies and terminations as the crisis continues.
- This leads to a loss in income and falling wages, which …
- Reduces the spending power of affected Australians.
- Compounding that, even for those who are holding on to their jobs, uncertainty will rise – people worry about the future, they worry about their income, they worry about their employment prospects.
That will impact spending patterns, and how much people are willing to part with beyond the essentials.
- The Real Estate market will take a hit.
- Because of social distancing and the inability to inspect properties and transact in the normal way. People are not used to change online options or inspecting properties digitally.
- Property transaction numbers will decrease – there will be fewer buyers in the market and there will be fewer sellers placing their properties on the market for sale.
- Property parties will drop slightly, but we are located investment grade properties and A grade homes will not fall much in value – possibly 5 to 10%, while secondary properties will suffer significantly higher price drops.
What happened to property last time Australia fell into recession?
When Australia experienced its last recession in 1990-1991 property prices had been flat or falling around the country even before the recession started.
However, overall house prices didn’t crash during the recession, in fact, some locations including Brisbane’s property market thrived, while the Melbourne property market was the biggest loser and house prices there fell 6%.
What happened to property values during other economic shocks?
While overall, property values have been very resilient to economic shocks, there is no one property market in Australia, and different states have responded differently depending on their own economic circumstances.
What does always happen is that transaction numbers decrease significantly, but as you can see from the following charts, economic shocks, world economic downturns and recessions don’t necessarily mean a crash in Australian property values.
Not all property market will be affected equally,
And while I accept that “overall” our property market could easily fall a further 5 – 10% 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 -10-15%,
- C grade (less than perfect) will be the hardest hit as there will be a flight to quality.
But this will be on a on very low levels of transactions and the pace of recovery from that point will depend on the state of the wider economy.
The key factor supporting prices so far is that few people have been forced to sell their homes due to losing their jobs or having their incomes cut.
This has been enabled by the government’s financial support packages assisting households whose income has fallen, in combination with banks allowing people in financial difficulties to defer mortgage repayments.
The worst affected residential markets will be:
- Apartments in high-rise towers – in fact this is these properties are likely to be out of favour for quite some time.
- Off the plan apartments and poor quality investments stock (as opposed to investment-grade) apartments, particularly those close to universities.
- Established homes in the outer suburban new housing estates, where young families are likely to have overextended themselves financially and with many people will be out of work for a while. Currently many first home buyers are taking advantage of the various incentive packages including HomeBuilder to buy newly constructed homes, leaving established houses in these locations languishing.
- Properties in the blue-collar areas.
Now is the time to take action and set yourself for the opportunities that will present themselves as the market moves on
If you’re wondering what will happen to property in 2020–2021 you are not alone.
You can trust the team at Metropole to provide you with direction, guidance and results.
In challenging times like we are currently experiencing you need an advisor who takes a holistic approach to your wealth creation and that’s what you exactly what you get from the multi award winning team at Metropole.
If you’re looking at buying your next home or investment property here’s 4 ways we can help you:
- Strategic property advice. – Allow us to build a Strategic Property Plan for you and your family. Planning is bringing the future into the present so you can do something about it now! This will give you direction, results and more certainty. Click here to learn more
- Buyer’s agency – As Australia’s most trusted buyers’ agents we’ve been involved in over $3Billion worth of transactions creating wealth for our clients and we can do the same for you. Our on the ground teams in Melbourne, Sydney and Brisbane bring you years of experience and perspective – that’s something money just can’t buy. We’ll help you find your next home or an investment grade property. Click here to learn how we can help you.
- Wealth Advisory – We can provide you with strategic tailored financial planning and wealth advice. Click here to learn more about we can help you.
- Property Management – Our stress free property management services help you maximise your property returns. Click here to find out why our clients enjoy a vacancy rate considerably below the market average, our tenants stay an average of 3 years and our properties lease
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