Why did they get it so wrong?

Early last year the banks, economists and other analysts were wringing their hands, predicting economic gloom and claiming that our property markets were about to crash.

ForecastAnalysts and economists often rely on past performance to help them make predictions, so when the pandemic hit our shores, they scoured the history books to check what had happened to the housing market during previous disasters.

They saw that past crises such as the Great Depression and the Global Financial Crisis had caused property markets to slump, and that’s what prompted their doom and gloom property market predictions.

Unfortunately, they looked to the wrong events and so they were misled.

The pandemic was not an economic or financial crisis, but a social one

Previous economic and financial disasters were not the right examples to rely on, because the pandemic was different.

It was a health and lifestyle crisis that called for social remedies such as physical distancing, mask-wearing, working from home, lockdowns, quarantines, border closures, and vaccination.

While the crisis was rapidly escalating early last year, I stood seemingly alone in a sea of doom, advising investors not to panic.

In my blog, The current crisis and the future of our property markets published one year ago, I reassured property owners and investors that “property prices will continue to rise in our major capital cities despite the pandemic.”

In that blog (shown on right), I explained that my prediction was based on what happened after a similar pandemic hit our shores.

This was the Spanish Flu, which occurred after World War One.

I discovered that rather than crashing, housing prices actually grew by more than ten percent each year once the worst of the pandemic had passed.

In fact, buyer demand rose to such an extent that it completely overshadowed the effects of the Spanish Flu.

Why did the pandemic result in a property market boom?

The reason was that once the worst was over, buyer confidence quickly returned.

People started buying homes with deposits they had saved during the crisis, and fueled by lower interest rates, government incentives, easy housing finance and reopened borders, the housing market boomed.

This is, of course exactly what is occurring again right now and the growth prediction I confidently made early last year has been confirmed.

Gloom Boom

Many believed that last year’s pandemic panic would encourage people to desert city life and relocate to the country

It was widely expected that last year’s lockdowns, social distancing and working from home rules would motivate many people to seek refuge in clean, green, covid free and more affordable regional areas.

The latest housing market figures from CoreLogic (for March 2021) however, show that this exodus has not occurred.

Capital City

For the first time in a year, growth in capital city housing markets outpaced regional areas in all States except Victoria, where Melbourne’s housing market has still been recovering from its hard lockdown induced issues.

The widely anticipated flight to regional areas has ended almost as soon as it was expected to begin.

This is because most of us want to continue living in big cities, which is a far cry from the mood just six months ago.

We’re getting out of here

During the height of the lockdowns many of our friends and associates assured us, “Once the borders are open again, we’re getting out of here.”

Melbourne LockdownIt was indeed the hope of escaping to a pandemic free paradise that kept many of us going during those dreary, dark and even dangerous days.

But as life gradually returns to normal, we start to visit and go out with our friends and families.

We appreciate the benefits of living near our favourite entertainment, sport, recreation and education services and facilities.

So, the urge to move far away disappears, because there’s no longer any need to escape.

Just like Dorothy in the Wizard of Oz, we realise that there’s no place like home.

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About

John Lindeman has well over a decade of experience researching the nature and dynamics of various types of assets at major data analysts and is a leading property market researcher, author and commentator. For more information visit Lindeman Reports.


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