In the blink of an eye, the housing market has gone from rising to falling. Buying in a falling market is often described as catching a falling knife. This is not always an apt description when it comes to falling property markets though. Unlike stocks and shares, you can gain a benefit from property beyond its short term price performance. Home is where the heart is and during the early stages of COVID-19, we’ve seen continued buyer demand and little to no panic selling.
The market could move in any direction. Both market bulls and bears can passionately and persuasively explain why their forecast for the property market is sound. The only challenge being, they are at complete odds with each other. The deeper we can go into this COVID-19 world, two points become clearer by the day.
Firstly, life as we knew it has changed forever. Secondly, Australia has fared significantly better than many other countries. How this plays out across the Australian economy and housing market into 2021 remains to be seen. The Government has introduced unprecedented support packages to assist the economy during COVID-19.
Early on, many mistakenly referred to these support packages as stimulus packages. Expect an economic stimulus to come from the Government as they aim to kick start the economy and get people back to work. Only time will tell whether they can succeed.
1. Some sales will still be buyer competitive
Don’t confuse the lack of transactions during April as a lack of buyers in the market. Admittedly buyers have gone to the sidelines and are watching events. Once the impact of COVID-19 can be quantified into the market’s thinking, buyers will return with an eye for quality property. Some of the sales we saw during April were competitive. There were a few parties who were almost disbelieving that a sale could be competitive and mistook it as an agent bluffing with the ‘there’s another buyer’ card. The agents weren’t bluffing.
2. The best homes are the least negotiable, even in tough markets
During market downturns, it’s common for buyers to focus on the price of a property rather than the attributes of the property itself. If you focus on purchasing the best property within your budget, you’re likely to do better than if you’re looking for a desperate seller so you “can grab a bargain.” The best homes rarely sell for a bargain price, even in downturns. Many buyers and agents were surprised at how resilient the market was through April. Prices were off between 5% and 10% but they certainly didn’t reflect the price drama experienced in other asset classes.
3. There are two types of properties
Those with COVID-19 priced in and those that priced at the pre-COVID-19 market highs of February 2020. Before asking a vendor to drop their price via a lower offer, compare the asking price to rest of the market. Many vendors have already done the negotiating upfront and priced to sell.
4. Keep an eye on the rental market
If you’re purchasing an investment, it’s important to note rents have dropped dramatically during COVID-19. How the rental market responds is probably directly linked to the unemployment rate. The number of foreign workers that have now returned home has left a dent in rental demand too. If you’d like to purchase a leased property, the question is not what it leased for last time. The question is what will the property lease for next time, once the current lease expires?
5. Focus on the trade within the cycle
If you own a property and plan to sell it to buy another, focus on the overall trade, not just the selling or the buying. The best time to upgrade is in a down market. The best time to downgrade is in a strong market. In May 2019, the market was at the lows for the 2017-2019 downward cycle. This represented a terrific buying opportunity. Between June 2019 and February 2020, the market rose nearly 20%. Clearly this represented a terrific selling opportunity. If you’re buying for the long term, property does well. But yes, the price could go down before it goes up. Selling high and buying low in the one market is seldom achieved. The reality is, one side of the trade will be easier than the other and vice versa, depending on respective market conditions.
6. Mortgage rates
Mortgage rates are at record lows and look set to remain low for some time to come. Gaining a home loan below 3% is a distinct possibility in this environment. In the past 6 weeks, buyers have benefited from a softening in property prices and record low mortgage rates. One of the key points to property is not what you pay the vendor, the key price is the amount you pay the bank in interest and associated fees. Admittedly property prices are not exactly cheap, at least mortgage rates are.
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