Why I never believe the property naysayers (and you shouldn’t, either)

Why I never believe the property naysayers (and you shouldn’t, either)

Remember a few months ago, when media headlines were awash with ‘doom and gloom’ predictions about Australian property prices?

A number of predictions, forecasts and financial modelling papers were released, and the information contained within them was not good news.

No matter which way you sliced it, property prices were set to crash – some predictions suggested they could fall by as much as 30-40%.

So what happened next?

Well, the property market didn’t collapse – did it?

In some areas, property prices have actually increased throughout the pandemic.

This is partly because credit has never been cheaper, which has made the prospect of home ownership far more affordable than it has been in a long time.

With interest rates as low as 2.19%, a mortgage today costs about one-third what it did a decade ago, when the average mortgage interest rate was 6.5-7%.

If property prices didn’t crash, what were all of these predictions about, then?

First of all, it’s important to understand that some of these reports were not coming from “dodgy” sources.

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No, in fact, it was the opposite: research reports and studies were being released by all sorts of reputable industry groups and organisations, from economists and major banks to the Reserve Bank of Australia.

But just because a prediction, forecast or economic modelling report is coming from a well known or trusted source, that doesn’t mean they’re always going to be right.

Many economists, research firms and experts are “wrong” every day.

What they are doing is taking a set of data and then they’re using their expertise and analysis to make a forecast, which is really nothing more than an exposition about what could happen.

Nothing is ever set in stone, especially not when it comes to real estate.

Here’s just a few “the sky is falling” property predictions that haven’t quite come to fruition…

  • 32% decline: One of the big four banks, CBA, warned back in May that Australian risked experiencing a 32 percent fall in house prices, in a worst-case scenario of a prolonged economic downturn. They’ve since revised this to an average peak to trough fall of 10 percent.
  • 40% price crash: When the Reserve Bank of Australia did some financial modelling of what could happen under a worst-case economic scenario, they modelled the impact on households if prices fell 40%. The media went crazy with this headline, and for a few weeks people believed a big crash was coming.
  • Revised by half: After previously expecting a 10% fall in national house prices between April 2020 and June next year, Westpac chief economist Bill Evans has revised his forecast to just a 5% fall, owing to several capital cities proving to be more resilient.

These are just some of the examples of predictions that haven’t come true.

What happened to the cliff?

Another example of financial “experts” getting it wrong relates to JobKeeper and all of the other financial boosts the government provided, which either ended or were wound back in September.

ForecastMany predicted we would fall off an economic cliff and the economy would be decimated come September 30.

Well, we didn’t fall off the cliff as we moved into October… just like we didn’t fall off the cliff that so many nervous Nelly’s suggested would happen when a number of investors’ interest only loans reverted to principal and interest.

All of this said, there’s no denying that 2020 has been a very confusing time – one that has tested the resolve of even the most experienced of investors.

When that feeling of uncertainty enters the picture, I think it’s really important to focus on the facts.

This way, you can work to remove the emotion from the equation and think critically about what you really want to achieve with your investments.

So what are the facts?

Since 2012, house prices have risen around 70% in Sydney and 50% in Melbourne.

LocationEven though property price growth is likely to be lower moving forward, at least for the short to medium term, some areas are still going to grow strongly.

We also know that location will do 80% of the heavy lifting in your property’s performance and that some locations outperform others by 50% to 100% over a decade with regard to capital growth and it’s likely to be those livable locations that will be highly desired moving forward.

The inner and middle ring suburbs of our capital cities is where wages growth will be above average, and these locations are where people are more likely to have multiple streams of income, and can therefore ride out economic uncertainty.

And if social distancing through coronavirus taught us anything, it is the importance of neighbourhood.

While some people will move to regional Australia to have more space, the majority of Australians will want to continue living in our capital cities, but in lifestyle, destination locations which have great amenity.

And it’s likely than in our new “Covid Normal” world, people will love the thought that most of the things needed for a good life could be within a 20-minute public transport trip, bike ride or walk from home.

Things such as shopping, business services, e education, community facilities, recreational and sporting resources, and some jobs.

NeighbourhoodAnd these locations will be high on the wish list of not just by owner occupiers but also for tenants, meaning neighbourhoods which provide lifestyle amenity are going to outperform with regards to capital growth and rental growth moving forward.

The inner and middle ring suburbs of Australia’s capital city is already meet these criteria, you will find pure outer suburbs that are able to provide a mixture of lifestyle, amenity and proximity.

Another fact to consider in the property equation moving forward is that not only has wages growth been very slow over the last decade, but moving forward it is likely that many Australians are going to experience very low, if any, wages growth for some time.

Right now, because of COVID-19, we’ll have low inflation and higher unemployment, together with more spare capacity as many workers will be working fewer hours.

To get ahead financially, this means you’ll need a second job…

But why get another job where you trade your time for money?

Instead, get a job as a property investor where your money works for you… even when you’re asleep.

Don’t believe the naysayers, property remains the largest store of wealth for ordinary Australians and this is unlikely to change moving forward.

Now is the time to take action and set yourself for the opportunities that will present themselves as the market moves on

Metropole

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:

  1. 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
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