Around this time each year it’s customary for those of us in the property industry to peer into the future in an attempt to predict what’s ahead for our housing markets in the coming year and beyond.
While making such forecasts is not an exact science, I can safely make five predictions that I am certain will be true for 2019.
1. Most predictions will be wrong
My first prediction for the year is that it will be a bad year for those in the prediction business.
I’m sure this will be correct as most economic and property experts get it wrong despite being armed with all the research available in today’s information age.
The problem is that while the fundamentals (things like population growth, supply and demand, employment levels, interest rates, affordability and inflationary pressures) are easy to monitor; one overriding factor that the experts have difficulty quantifying is investor sentiment.
Currently investor sentiment is low, in fact the lowest it’s been for decades, despite the economic fundamentals being quite solid.
“Investor sentiment is low, in fact the lowest it’s been for decades, despite the economic fundamentals being quite solid.”
2. Many things won’t happen and other will
Many of the predictions for 2019 won’t happen and a lot of things will happen this year that no forecaster thought to include in their predictions because market movements are far from an exact science.
Every year there is an “X factor” sometimes called a Back Swan event.
This is an unpredicted factor, either locally or from abroad, that impacts our markets either positively or negatively.
However, in retrospect, these unexpected events will seem to be the obvious consequences of the current economic and political environment.
Last year no one really predicted the full impact on the world of finance from the revelations of the Haynes Royal Commission nor the depth of the crisis in consumer confidence that would be brought about the credit squeeze.
3. Some forecasts will be right
I predict that a small number of the many economic and property forecasts for 2019 will accidentally come true and those who randomly predicted them will claim to be experts, despite the fact that it was the first time they got one of their hundreds of forecasts right and that they adjusted their forecasts over the year as circumstances unfolded.
4. I believe that most property investors will get it wrong this year
This one is simple –they always do!
And I’m not talking about those who fail to take action this year and wait for things to be just right before they get into the market, even though that will be a big mistake this year.
What I’m talking about is based on data from the Australian Housing and Urban Research Institute, which shows that 20% of those who do invest in property sell up within the first 12 months and 50% sell within the first 5 years.
These failed investors will never gain the long term wealth creation benefits that property investing is all about.
“20% of those who do invest in property sell up within the first 12 months and 50% sell within the first 5 years. These failed investors will never gain the long term wealth creation benefits that property investing is all about.”
5. Those who get it right will do very well
And my last prediction is that those property investors who get it right will do very well out of real estate this year and set themselves up for the years ahead.
Those who saw previous property downturns as a countercyclical opportunity have consistently done well for themselves. They recognise the slower market as a chance to invest when others are too afraid to buy and when there are more willing sellers in the market than purchasers.
However not all investors who buy during the downturn will get it right
That’s because you can’t just buy any property and expect it to outperform in the long term. The key is to buy the right type of property, in the right location.
At this time in the cycle correct asset selection will be critical.
You need to buy an “investment grade” property below its intrinsic value and one that has a “twist.” Something special about it – like value-add potential which allows you to manufacture capital growth through renovations or redevelopment.
Ideally you should look at purchasing in the inner and middle ring suburbs of our major capital cities in locations that have a historical pattern of above average capital growth, regardless of the ups and downs of the property cycle.
Because the value of property in good locations will continue go increase in the future due to scarcity.
All of those factors that are underpinning our already healthy economy – economic growth, jobs growth, population growth, the shortage of the right type of property and infrastructure spending will also have a positive impact on this type of property.
What else will influence the Australian property market this year?
Other factors that will affect our property markets this year will be:
The availability of finance
Consumer confidence and
The result of the Federal election.
If our property markets slump further this year the RBA has the ability to lower interest rates as it has often done in the past, or APRA can loosen the screws and allow investors and home buyers borrow more freely.
“I can’t see any indication of a rate rise in 2019 – if anything they should fall, but the RBA doesn’t like to fiddle with rates in the months leading up to an election.”
I can’t see any indication of a rate rise in 2019 – if anything they should fall, but the RBA doesn’t like to fiddle with rates in the months leading up to an election.
Of course any fallout from the Haynes Royal Commission into Banking will further affect the banks’ willingness to lend and possibly their need to lift rates out of cycle.
And I can’t see consumer confidence improving significantly until after the election due to the unknown future status of negative gearing and Capital Gains Tax.
This means there will be further moderate price falls especially in Melbourne and Sydney and there are likely to be significant price falls for new and off the plan apartments.
In the meantime other property markets including Brisbane, Canberra and Hobart will keep rising in value.
“Our real estate markets will remain fragmented, but there won’t be a crash.”
So our real estate markets will remain fragmented, but there won’t be a crash.
Despite all the doom and gloom we hear in the media, things will not fall in a heap, we will experiencing an orderly downturn with no signs of forced or desperate selling.
Why am I so confident about this?
Because history is a great teacher!
And history tells us that over time, the value of well located capital city properties always go up and investors who stay in the game for the long term always do well.
Sure there are periods of flat or falling values, but the sceptics who like to warn investors away from real estate always get it wrong.
If you think back over time, the naysayers were always out in force when the property cycle starts to slow down.
I have been investing in property for well over forty years now and during that time I have been warned about a property crash on numerous occasions, including;
In 2010 -12 when the RBA raised interest rates to slow down the property boom of the time and our markets slumped till rates were eventually lowered again.
In 2008 when the Global Financial Crisis rocked the world, many suggested property values in Australia were set to crash and we were all going to lose our jobs, but of course that never eventuated.
In 2004, the property markets in Sydney and Melbourne housing values stalled, due to high interest rates that peaked in late 2003 but look what’s happened to property values in those cities since.
Around the year 2000, there was a heap of negative press and worry about the impact of the GST that was being introduced in 2001. People said this new tax would destroy the housing market.
In the early nineties, when interest rates peaked around 18% and the markets crashed, everyone said it was the end of Australian property wealth and it would all be downhill from there.
As you look back it becomes clear that there is a cyclical pattern to our property markets with the media and “clever” commentators offering lots of reasons not to invest.
But the truth is, we have periods of prosperity and periods of slow or negative growth in the housing market – this has always been and will continue to be the case.
So the big question is…
What will 2019 bring your way in terms of wealth creation and the property markets?
Here’s one more prediction for you….
Most people reading this blog will do nothing different in 2019 than they did in the past.
Michael Yardney is a director of Metropole Property Strategists, which creates wealth for its clients through independent, unbiased property advice and advocacy. He is a best-selling author, one of Australia’s leading experts in wealth creation through property and writes the Property Update blog.
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