As the Victorian economy struggles through the Coronavirus shutdown, one question keeps coming up: Are property prices about to crash?
Of course there are always the doomsday headline seekers. Professor Steve Keen has been predicting a 40% fall in Australian house prices “within 5 years” since the GFC in 2008. He is infamous for having bet on it happening. Which he lost, subsequently walking from Canberra to the top of Mt Kosciuszko as his ‘punishment’.
That does not stop him continuing to predict the same thing (without betting on it). I suspect such predictions are more about headline seeking than genuine analytical forecasting.
Over the years I have conducted many investment property seminars, aimed at assisting aspiring property investors in their education of the market. Questions on the projected path of property prices have always featured in such seminars. In the current uncertain economic environment, it is worth re-visiting some of the key metrics behind such forecasting.
Firstly we need to be realistic - population growth, low unemployment and low interest rates have been supporting property prices over recent years – and now two out of those three have been smashed by Covid-19. That will affect supply and demand for property.
If our international borders remain closed for years, limiting population growth, then total demand for property will decrease. If unemployment is to be double digit long term without comprehensive government support then demand for property purchase will decrease.
Will those two problems both remain long term? I doubt it. But they could.
What I do know is firstly that interest rates will remain low for the foreseeable future, and secondly that I have clients lining up ready to take advantage of expected opportunities.
There will be some forced sales. There will also be first home buyers, and investors, looking to take advantage of that.
It is also important to remember there is not one property market, there are many.
There will be better buying opportunities in inner city apartments than there will be for established suburban houses, particularly those with a designated study area. Some regional areas may even experience mini booms as decentralisation becomes more popular.
Area demographics will also impact differently. New estate areas with higher loan to value ratios are at higher risk than long established areas. Suburbs with a higher percentage of investment properties will be more at risk. High-end luxury property is always a more volatile market, I would expect that to again be true.
I believe within this volatility and market pressure we will see a drop in property prices of around the 10% price range, 15% at most. That is not calamitous and will be recovered. It is an opportunity, not a disaster: There may be individual properties available for purchase at a greater discount for those ready to act.
How long will the volatility last? Tell me when a reliable vaccine will be available, and I will answer that.
What I can say right now is that this is the time for you to take action. You need to assess your current position. The next six months may provide an opportunity for you which may never be presented again. Perhaps you are an aspiring first home buyer, or an aspiring upgrader, or an aspiring investor.
You need to set yourself ready for opportunity. As Winston Churchill once said – referencing the dark days of World War II - never let a good crisis go to waste.
Daryl Borden QPIA*
*Daryl is a graduate of the Property Investment Professionals of Australia (PIPA) accreditation program, recognised as the only ‘diploma level’ Qualified Property Investment Adviser course available. He also ‘practices what he preaches’ with a multiple property investment portfolio.
*Image courtesy of Google Images