Expert's view: ‘I have no idea what will happen to property prices’
It’s hard to make predictions. Especially about the future. It’s even harder to predict the end point of a moving target.
Yet, as someone who’s meant to know a bit about our property markets, I’m regularly asked how all this is going to play out. What’s going to happen to the property markets? Are house prices really going to crash like those doomsayers keep telling us?
Of course, I realise there are some commentators out there making predictions; but my answer is – I really don’t know!
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I realise that’s not a satisfactory answer. By the way… No one else really knows the answers either!
Yet at a time like this, most of us are looking for someone to tell them what’s going to happen next.
Of course I wish I had the answers. I really do. All I can say is I don’t know.
I don’t know how this virus is going to play out, how long we’ll be in lockdown or what the economic fallout will be.
But there are a few things I do know.
I know many commentators want to compare this to the Global Financial Crisis or the Depression of the early 1990s, but this is very different – we are in uncharted waters.
This is a health crisis and our government has severely restricted our mobility and put our economy, businesses and the property market into hibernation to prevent the terrible human disaster that has happened overseas.
I also know the governments of the world have never ever made such a concerted effort to minimise the economic downside.
I know the Australian government has thrown trillions of dollars, everything including the kitchen sink, to minimise the economic pain for businesses, for people and to protect our health.
I know our property markets have gone into hibernation and this will prevent a freefall of property values as there won’t be any forced sales.
Particularly since the banks are providing a pillar of support for homeowners and property investors with loan holidays or loan deferrals of up to 6 months. These measures should help to delay distressed sales that would otherwise flood the market.
Transaction levels are likely to be significantly impacted over the next few months, particularly with the increasing strict social distancing rules.
But this doesn’t necessarily mean property values will plummet.
So while property values may fall a little in the next few months, that won’t really be a reflection of their ‘intrinsic value’ but more a reflection of the market lockdown.
And sooner rather than later, we’ll come to a point where property transactions and prices will once again reflect the underlying property fundamentals, rather than the current market restrictions.
On the flip side of the coin, suppressed transaction activity means we can expect to see a build-up of pent up demand and our property markets will rebound in the second half of the year.
Something else I know…
I know that just like every other crisis that we have experienced, this too shall pass.
I also know that our property markets will resume their uptrend. And most people won’t recognise this until the markets are well and truly on the move because nobody will ring a bell when we hit the bottom.
I know people will once again go outdoors. They’ll visit their favourite restaurant or meet their friends at the pub and go to the local shopping strip again.
They may not travel overseas but once they’re let out of the house they’ll been keen to travel around Australia.
I also know that, once we cross that proverbial bridge the government is building for us, there will be abundant opportunities all around us.
Maybe I was wrong.
I started off by saying I don’t know what’s ahead but having written all these words now and having a few more concepts to share with you, I realise that maybe I know more than I thought I did.
I know that currently many people are feeling anxious, scared, uncertain. By the way… It’s OK to feel that way; it’s normal.
But it would be very wrong is to act on these emotions. We’ve all heard that Warren Buffett wisely said: “Be fearful when others are greedy and.be greedy when others are fearful.”
That’s easy to say, but it’s not easy to do.
However, I’ve seen many otherwise intelligent, rational people make terrible investment mistakes when market sentiment gets to them and they try fix short-term problems with what end up being long-term disasters.
Their emotions took over.
Look at all those investors who sold their properties in late 2018 and early 2019, only to see the property markets around Australia make up all their lost ground and reach new peaks.
Here are a few more things I know.
I’m writing this in April 2020 and I know there is a lot of uncertainty in the world.
It’s a tough place for people to be, people just aren’t sure what’s going to happen – they’re looking for a level of certainty.
But there are some certainties I can provide you with.
I can say with certainty that in 12 months’ time it will be April 2021. I know that for some people that just seems so far out it’s not even worth thinking about.
Another thing I can tell you with certainty is that at some point and I don’t know when this will be, whether in 6 weeks or 6 months; but at some point we will pass a line that I called the “Survival Line.”
This “Survival Line” will occur when people’s level of desire to move forward overtakes their fear. Some people say it will be when greed overtakes the fear.
And another certainty is that on the other side of that survival line will be many opportunities to thrive. Not just in property but in business as well.
Lessons I’ve learnt
Having spoken with many property investors, business owners and entrepreneurs recently I’m finding their thinking in three different ways: -
Some are fear focused. They’re panicking, they’re frozen, they think the world is coming to an end. They don’t have a long-term focus.
They are closing down their businesses or selling up their investments.
They can’t see a future for themselves or their businesses and that’s a real tragedy, because they won’t make it to the survival line, which may come around sooner than they think.
Others are going into hibernation mode. They bunker down. They buy all the rice, pasta and toilet paper they can and stay low to ride it out.
They will cross the survival line but will experience lots of ups and downs in the meantime and lose a year or so of their life in the process.
Then there’s a small group of strategic investors and business owners who are positioning themselves for the future.
They recognise that there is currently a strategic window, the time between now and that survival to get set to take advantage of the opportunities that always abound after severe downturns.
As property investors they are working with their consultants to set up a strategic property plan, they getting their financial and ownership structures in place and doing the appropriate research.
They’re not trying to time the market, but they want to take advantage of the opportunities the market is currently and will in the future be offering.
These strategic investors know that people will eventually come out of lockdown and want to get on with their lives.
These strategically focused investors know it looks bad today, it might even look bad tomorrow, but they’re prepared to hang in there, they’re prepared to lay the foundations for their future success.
Despite the headlines, they know that the world will not going to end. They are prepared to bet on humanity.
They recognise that how they think and what they do between now and that survival line will determine their level of success when we move on to whatever our new normal will be.
So how are you thinking? What conversations are you having – with yourself and with others?
In which of these three groups of investors do you want to be?
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 and hosts the popular Michael Yardney Podcast.
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