Should I sell my apartment? – Head vs Heart

Should I sell my apartment? – Head vs Heart

The debate on this question is a Heavy Weight Title Fight between traditional rivals your “Head” and your “Heart”.

Head or “Brain” as his is known in boxing circles has an enviable record and coaching team including the solid companion – Logic, and his trusty sidekick – Reason. However “Heart” is no push over when it comes to making real estate decisions and is a fierce competitor with a solid lifelong support team in the box – Emotion, Passion and Lifestyle.

In the Red corner weighing in at 1,500 grams “Brain” is undefeated in this weight division except when it was clearly beaten by that giant slayer “Love” in 2007 who is the well-known kryptonite for logic and reason.

In the Blue corner, weighing in at only 320 grams and well out side its normal weight division is “Heart” who has a very good win / loss record especially when it comes to emotional issues.

Ding Ding – Round 1

The referee address the two combatants stating that the 6 months prior to Covid-19 were very positive for the Melbourne apartment market. Sales results were strong, prices were ticking up, population growth was solid and the pipeline of future apartment projects was low meaning lower supply placing upward pressure on pricing.

After encouraging a fair fight “Brain” bounces out of the Red corner swinging…

  • Unemployment is up and will remain so for 2 years
  • GDP is down and will also take 2 years to recover to pre Covid levels
  • Population growth in Victoria will take a massive hit given overseas migration formed a large part of it but hopes foreign students will return to Australia in preference to the US and Europe.

“Heart” gives a dismissive wave of the hand, has a sip of red wine and gazes to the horizon before moving in and placing a few sharp jabs to the ribs…

  • There is a lot of things we could do with that money you know.
  • I just feel uncomfortable about having debt at the moment.
  • What happens if our tenant leaves and we can’t find another one?

Points are pretty even after Round 1 and the rested warriors resume hostilities.

Ding Ding – Round 2

“Heart” is on a roll now and is quickly back into the fight.  Another sip of wine, exhales and says “but of course on the other hard” …

  • I reckon all this coronavirus / lockdown thing is about over now. Life will be back to normal in no time and all will be forgotten in 12 months.
  • America and Europe are in trouble, but Australia and New Zealand have almost beaten Covid-19.
  • And then lands a big right hook with… we would be mad to sell for less than we paid for it.

“Brain” performs a perfect eye-roll – questioning frown combination and retorts.

  • It’s more relevant to think what is going to happen to the market in the future and if values will rise or fall from now on.
  • Whether it’s value is more or less that we paid is academic and irrelevant to this decision.
  • Many buyers recognise now is a great time to buy and are out looking so the market is solid.
  • Bank lending is improving post the Banking Royal Commission.
  • Interest rates are at all time lows and are likely to stay that way for some years.
  • Recent research shows the market has actually only fallen by less than 5%.
  • Auction clearance rates are not indicative of market values and in any case are more relevant to houses.

That’s the end of Round 2 and still the points are all tied up.

The referee calls both warriors to the centre of the ring for a bit of independent coaching.

With the diplomacy skills of Kofi Annan the referee congratulates each of them on the struggle so far and relays a few important truths.

  • Even in relatively stable economic times experts can not agree on market forecasts so given we are such volatile times no one knows how this is going to play out.
  • Yes apartment values have fallen but don’t assume they will rebound when restrictions lift.
  • The economy has taken a big hit as have major drivers to the apartment market like population growth and the appetite for foreign investment to Australia.
  • All markets move in cycles and property is a long term hold and is not something to be traded in market cycles.

Round 3 and with words of wisdom front of mind they stroll to the centre of the ring and after a quick discussion turn to the referee to declare the battle is resolved. “Heart” and “Brain” have decided they don’t need to sell right now and will hold for the time being.

Metaphors aside the apartment market remains reasonably solid and there are many buyers out looking. First home-buyers are out in force and the biggest issue right now is a crises of confidence in job security and economic activity.

Most economic forecasters agree the various government economic stimulus packages will drive a sharp recovery in the final quarter of 2020 and through 2021.

The interesting thing about most subdued markets like this one is no one wants to buy if they think it will be cheaper tomorrow. But now the market has stabilised at slightly reduced values buyers are more confident to buy and it’s now up to sellers to adjust to the market if they wish to sell.

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