A fear of the unknown has, understandably, driven itself deeply into the Australian psyche this year. We have been delivered a once-in-a-generation challenge by this pandemic and there continues to be concerns about what lies ahead.
But part of the problem is that ‘armchair experts’ have been espousing opinions – and many have no basis in fact. From amateur virologists musing on herd immunity, to unqualified social-media ‘economists’ predicting the downfall of our financial system.
The end result is a lot of noise, but not much substance. Unfortunately, these ineffective observations do influence a very real driver of property market performance… confidence.
Historically, Australia’s real estate markets have flourished during certainty and suffered during doubt but regardless, there are many reasons to be optimistic right now.
One programme that’s propped up confidence in recent months has been the government’s JobsKeeper and JobsSeeker packages which have helped Australian households stay afloat during an exceptional rise in unemployment.
But, of course, the current raft of assistance is due to end in September and that already has pundits delivering dire predictions about how property markets will cope.
Apparently, tenants will walk away en masse from leases which will trigger numerous mortgagee-in-possession sales resulting in huge discounts and plummeting values?
These dire predictions make for clickable headlines, but I’d like to inject a little sanity into the discussion. Because, calls that a property price cliff looms large have no basis in reality.
Here are six reasons why I believe we’ll do better than expected come September’s end.
1 – Australia’s leadership has excelled
Even the most staunchly partisan Aussie has to admit, the way various levels of government have worked together to keep infections under control and maintain our nation’s AAA credit rating has been outstanding.
This is the same leadership group working towards tackling the next phase of economic recovery. Given their track record, they will no doubt deliver further strategies that will see us ride out the coming months in the best possible shape.
2 – Interest rates
Mortgage rates are at record lows. A new wave of mortgage rate cuts is underway by the banks, with NAB lowering its rates last week to match cuts made by Westpac earlier this month. Further cuts are expected.
3 – There’s been plenty of lead up
Unlike some disasters, this one has been a slow burn. Plenty of households have been finding ways to shore up their finances and build a war chest of savings. Through addressing household budgets and lower discretionary spending, financier-approved mortgage relief and early sale of an assets, Australians have been preparing for potential troubles already and are well placed to take on the challenge in September.
4 – Property is illiquid
Real estate is not the share market, as has already been proved during the crisis. Property is immune from the wild, knee-jerk reactions to the bad news that plays out daily on the ASX. This means decisions made by homeowners and investors must be well considered before action is taken, because the process of selling takes weeks, if not months.
This plays into another reason to feel OK about September. Losses will only be realised if property is sold and, as we’ve seen so far, owners who can afford to hold tight are choosing to do so. Limited stock relative to demand has kept prices resilient and I think this will continue.
5 – Bank repossession takes time
Anyone who imagines that come September’s end, there’ll be a posse of bankers knocking on doors with takeover notices in hand is kidding themselves.
Even if the worst were to happen and homeowners in large numbers were unable to service their loans, the process of repossessing a home involves multiple steps across many months.
Add to this that the pre-crisis Royal Commission resulted in a finance system that was already prepared for the crisis in many ways and as robust as any in history. There will be very few loans approved in the last two years with a high risk of failure due to the stringent servicing requirements applied during application.
6 – Medical solutions
There has never in history been such a concerted global effort to find a vaccine or effective treatment for a health challenge like this. And while I do not hold a medical degree, those that do seem, on the whole, confident we will be delivered a solution in only a matter of time.
Given the vast number of vaccine candidates being tested, and that human trials are already underway for some, chances are an end to the crisis will be with us sooner rather than later.
So, my call is this. While we may experience some challenging fiscal conditions come September, our capitalist market system, strong leadership and medical advancements will help the community, including property owners, ride out the rough patch and be delivered safely to the other side.
If you are weighing up your options in a complex property market, give me a call today on 0405 134 645.