May 12, 2020 by Dymphna

Why I’m still a lone voice on property forecasts

The banks don’t seem to get how much mood matters these days…

Now, I’m telling everyone to get ready.

This crisis is epic. And that means that the opportunities are going to be epic.

But when I say ‘get ready’, I’m not saying rush out and buy right now.

(I’m not saying ‘don’t buy’ either. A good deal is a good deal, and there’s a lot of money to be made on deals that have nothing to do with the cycle.)

But the full potential of the coming opportunities will land several months after the crisis is over.

And when I say ‘get ready’ I mean get ready to buy. That has a practical dimension – get your tax done, get your ownership structures in place etc. But it also has a strategic dimension.

What kind of deals are you going to go for? What are the metrics you’re looking for in a property? What kind of areas are going to give you the deals you want?

None of this is rocket science, but it all takes time to nut out.

And you need to be doing that work now, in this window of preparation. If you wait until the market turns before you decide to act, you’ll will have either left it too late, or you will be rushing it and making bad decisions.

So get ready now.

And a lot of people are asking me, what are signals are we looking for in the market?

How far will prices fall? How will we know when the markets turning?

And look, if I had a crystal ball and knew that exactly, I’d be a gazillionaire.

But I think the trajectory is not too hard to anticipate.

As a starting point, let’s look at what the ANZ economists are forecasting for 2020 and 2021, for each of our capital city markets.

What we’re looking at there is peak-to-trough declines of 10-12%, frontloaded into 2020.

Some cities should fare better – Brisbane and Adelaide should get off fairly lightly. In Sydney, Melbourne and Hobart the falls will be more pronounced.

ANZ are assuming the following when they make this forecast:

  • Unemployment is tipped to rise to just under 10%, with significant cuts to both working hours and wages. Unemployment is expected to remain above 7% until 2022.
  • “This collapse in income will create significant uncertainty for households and leave many unwilling to commit to buying a home”.
  • Rental stock is predicted to rise sharply and rents will fall.
  • Immigration will fall, hitting demand especially hard in Sydney and Melbourne.

I’m not sure I’d quibble with any of that, but I don’t think it does enough to capture the sentiment cycle.

Personally, I expect will see much sharper movements. I think we could see double digit falls just in 2020 alone – particularly if lockdown drags on longer than expected.

However, on the other side, I expect things could bounce back quickly, as confidence returns to the market and the impact of lower interest rates and money printing starts to be felt.

So something like -10% in 2020, followed by +5% in 2021.

A lot of that hinges on just how quickly the crisis is resolved, obviously, and that’s difficult to predict.

But still, in anticipating such a sharp trajectory in prices, I’m a bit of a lone voice.

But I know that sentiment is going to be far and away the biggest driver of this cycle.

And sentiment can turn very, very quickly.

Which, again, is why the time to get ready is now.

It’s a different world. Moods are viral and they move quickly.

The window of opportunity could be very narrow.

It’s time to get moving now.