Short term pain … long term gain.

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In times of major economic and social disruption we need to strip back and review everything we do to check if it is relevant to the new world. So many business practices and investment plans are ingrained in us from about 30 years of economic prosperity. And once you have done the first cut of reviews, dig deeper and review the next level and the next. Now envisage a world twice as bad as what you think its going to be and redesign your life and business in that world. If things turn out to be not as bad as you thought, it is a bonus. Otherwise you have prepared very well.

This planning is what I have learned from experiencing downturns and recessions starting in the early 90’s when I was retrenched (or sacked as it was known then) before finding a new job and spending the next 10 years in a property market clawing its way back. The economy was hit again in 2000 Asian crisis but that was just a flesh wound comparatively. The next big lesson was the GFC in 2007 but again Australia navigated those waters pretty well.

So now in 2020, 30 years since my baptism of fire,  the issues being dealt with as a result of Covid-19 are nothing like anything anyone has ever seen. We are all digging deep into our learning and there are so many issues pushing and pulling the market and those factors are unpredictable individually plus the confluence of their combined impact makes any forecast with confidence impossible.

But let’s try to pick out some of the big issues that are impacting the property market and think which ones are more likely to drive long term and short-term issues.

Things like market sentiment and household wealth, while important, are more short to medium term drivers. The most important issues to focus on are the long term ones such as;

  • Amount of new housing supply (long term positive)
  • The level of economic stimulus (medium to long term positive)
  • Population growth (short to medium term negative)
  • Interest rates or more specifically the cost of debt. (positive in all time horizons)
  • Economic activity including global influences. (short to medium term negative)

With reference to this list, 3 out of the 5 are medium to long term positives and 2 are short to medium term negatives.

Unemployment tends to impact the property market in certain sectors only. That is to say unemployment has an impact on the more marginal property markets and almost negligible impact on the most sought-after sectors. The ripple effect of people moving further out to find value tends to subside, and as values drop people start looking in the more preferred locations and property types.

While the long term outlook is good you better buckle up as it is going to be a bumpy ride for the next 1 or 2 years. As the domestic and global economies recover so too will Australia’s property market. Don’t get spooked by all the noise in the media and there will be plenty of it. Years 2 to 5 should see the impact of the housing shortage and economic stimulus combine with continued cheap debt and renewed job security to push housing prices back up. Population growth will return over time the fundamental need for housing will continue to drive prices.


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Apartments Made Easy

Written by a 4th generation real estate agent Apartments Made Easy gives you the tools and tells you all you need to know about how to buy, sell, own, lease, and manage your apartment successfully.

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