There is a common misconception that the saying "never let a good crisis go to waste" is a political one, often attributed to Winston Churchill. The saying itself leaves a bit to be desired in terms of helping those around you, but there is an important truth buried within this maxim that has been used time and time again by those who wish to take advantage of tumultuous times.
We don't blame them, where there is choppy waters there is also wind to fill the sails. When looking at buying or selling a property, it is important to develop the right strategy; and timing is everything. Now, more than ever, the timing of a sale and purchase could benefit you greatly or cost you plenty. Property prices are driven, like everything else, by supply and demand. We are at the mercy of the 'invisible hand of the market' as the economists call it. So, what factors are driving changes in property prices over the coming months and years, and when is the best time to make the most of a purchase or sale in Melbourne?
One key factor on everyone's mind right now, and rightly so, is employment. Lots of people tend to look at the wrong number though; the unemployment rate. Given the volume of people on JobKeeper, the Reserve Bank Governor Philip Lowe, suggests we should be using the ‘total number of hours worked’ as a more accurate measure of how employment is tracking, and he's right. “The unemployment rate would have been much higher without the government's JobKeeper wage subsidy” he says.
There is no doubt that the health crisis and panic caused by COVID-19 will have a substantial impact on our economy. Property is fundamentally linked to our economy and as things change, so will property prices. Mr Lowe has warned us that, this year, we are likely to experience our biggest contraction in national output since the Great Depression. ‘Total hours worked’ has declined and is likely to decline further. Don't worry though, it isn't all doom and gloom, we as humans are extremely adaptable, just ask our politicians.
Some good news is that residential property tends to be less speculative and more resilient than most investments. It also tends to be an investment that people are drawn to in uncertain times, as riskier asset classes look relatively even more perilous. We are adaptable though, so how have we dealt with this crisis so far? What makes this time any different?
One saving grace for many families has been the deferral of their mortgage repayments by the banks. These deferrals have given them space to be able to work less hours as required, earn lower incomes and plan for their future, without defaulting immediately or having to sell in the short-term. While we may be on the cusp of the most significant economic crisis since the Great Depression, we have learned a lot since 1930. So, with employment, JobKeeper and banks deferring loans, where will that leave the property market?
Well, we have seen a low volume of transactions across the board, with auction clearance rates now climbing. Woodards had an auction clearance rate of 82% (weekend 20 June 2020), compared with the reported industry average of 67% (REIV). Both these numbers represent a vendor’s market, that is, a better time to sell than to buy. Given how in-demand property is, we may always be in a vendor’s market in inner-city Melbourne, but clearance rates of over 80% are encouraging. So, because properties are selling, does that mean you should? A shortcut to answering this is the most important consideration when developing your strategy, "What is the purpose of the transaction?"
If you are holding a property with no mortgage that is generating a consistent income which you have held for a long time, consider holding on. As the Persian adage goes, 'this too shall pass.' A long term family property is best held until the job market and economy improves. Not everyone can afford to hold property for two or three years until things improve, but there is good news, we could be at the peak of this two-year window. Things may get worse before they get better, and prices are yet to dive. With that in mind, if you need to sell a property within the next year or two, now is a better time than later.
Economists across the country are concerned about our transition from 'stimulus' to 'normality'. That is the question, when put more simply, 'What happens when JobKeeper stops and the banks start calling in loan payments?' With supply low and clearance rates high, now is a better time to sell than Spring 2020 might be. September is a key month for Australia, as a stimulus that can't last forever comes to an end and banks built on profit call in their loans. Some families may be forced to make tough decisions to cash in and change their living situation to match the new normal. This 'distressed selling' as it is sometimes referred to, is what could drive the wave that causes more substantial declines in property prices.
Our advice is that if you are thinking about buying or selling, now is a more important time than ever to have a thoughtful, strategic advisor with your best interests at heart, to give you the right information. Through this tough time, families can still live happily, investments can be made carefully, and your future can be protected strategically.
The saying 'never let a good crisis go to waste' isn't perfect, but the origin is softer, even more altruistic than most people think. Originally a medical term, it was meant to impress upon doctors and nurses the importance of learning from their mistakes, so they didn't make them twice. These health professionals are renowned for going over the death of a patient in great to detail to learn from these case studies. Our economy has been through similar tough times, even if we may not have seen anything exactly like this.
At Woodards we have learned a lot about the property business since 1921... and we would be delighted to share this with you at the right time, so you can get the timing right.
If you are considering selling or would like an opinion of value for your home, please contact your local Woodards office.