By now you may be wondering how the coronavirus issue may impact our property markets given that the stock market has been spooked globally with values plummeting over the last couple of weeks. The question on some people’s minds is whether our property markets will be next and whether you should take some sort of action. Let me share my thoughts.
Firstly, it goes without saying that those effected (directly or indirectly) by this terrible virus are the real losers – as you can’t put a price on the human life. One can replace money and houses, but you can never replace a human life – at least not that I know of.
The truth is no-one can predict with accuracy what’s going to happen over the coming months, but I am pretty confident I know where our property markets will be 5 years, 10 years or even 20 years from now.
Unlike the stock market, property is a much longer process to transact and therefore the “knee-jerk” reaction which comes with buying and selling shares doesn’t apply to property.
Furthermore, property is a human need – it’s a roof over someone’s head. The main factor that impacts the value of a property is supply and demand.
The stock market is fearful right now with many investors, and punters, reacting to the global outbreak of the coronavirus. Some businesses will suffer, but not all. Those businesses linked to hospitality, travel/tourism, possibly education, and those who rely on supplies from South East Asia will be mostly impacted. But when it comes to human fear and investing, logic goes out the window and people will make irrational decisions based on all the bad news that is widely reported. To this end, most stocks – if not all – are currently being punished whether the coronavirus will directly impact their bottom line or not.
I received an email this morning from my SMSF Financial Advisor (Rob Gould) with some interesting facts. Since 1980, here’s what took place:
- 12 corrections to the Australian stock market – of 10% or more
- 8 bear markets – with a decline of 20% or more
- 5 recessions in the past 40 years (with 2 quarters of negative growth)
- The ~17% drop witnessed over the past couple of weeks to the Australian stock market has taken us back to January 2019 levels
Yet during the same period (1980 to 2020), the median house price in Melbourne went from ~$39k in 1980 to ~$902k today (source: Domain). Similarly in Sydney, the median house price went from ~$68k in 1980 to ~$1.14million today (source: Domain).
Do you see what I see?
If you are someone who gets spooked with headlines and negative news, then you’re unlikely to make any financial moves as there will always be that X factor. Play the long-game and you can’t lose.
Just only 2 months ago Australia witnessed the worst bush fires in history, which was devastating on every level. Today the coronavirus is the X factor, resulting in increased fear and irrational behavior by many investors, and by those contemplating their next financial move.
Whilst my crystal ball broke a long time ago, I am confident in saying that our property markets will remain a robust asset for the following key reasons:
- Our population is growing at record numbers, in particular Melbourne and Sydney (our 2 largest cities)
- Interest rates are at historical low levels, with most experts claiming this is the new ‘norm’
- First home buyers are back in full force, taking advantage of increased government support such as grants and schemes
- Australians have always (and always will) have a love affair with property, therefore the fundamentals are strong – we’re just not a country of renters (like the USA)
- Housing supply is low, adding increased pressure to house prices
- When investors pull away from the stock market, property is the beneficiary as ‘bricks and mortar’ is seen as a safer bet
- Property is (and always will be) a human need as it puts a roof over your head, therefore it will always be in demand no matter what
As simple as this may sound, you shouldn’t make long-term decisions based on the last 24 hours of headline news – this is one of the golden rules to achieve financial success..!!
The truth is that there will always be an X factor on your investment journey. To increase your chance of financial success, be aware of what’s happening but don’t change path from all the short-term noise and from the hysteria that may be present right now.
This terrible coronavirus will pass, just like other X factor events did – e.g. the GFC, the Asian bird flu, SARS, the Swine flu, September 11, and so on. However what will also pass will be today’s property prices – 5 years from now property prices will seem cheap and you’ll wish you acted on your planned purchase or that you remained on track with your financial journey.
In signing off I would like to remind you of one of Warren Buffet’s infamous quote, which is relevant in light of the above… “Be fearful when others are greedy and be greedy when others are fearful.”
I hope my comments above gives you a different perspective when it comes to property and the current crises related to the coronavirus.
Disclaimer: The Information is general in nature and does not take into account your particular investment objectives or financial situation. It does not constitute, and should not be relied on as, financial or investment advice or recommendations (expressed or implied) and is not an invitation to take up securities or other financial products or services. No decision should be made on the basis of the information without first seeking expert financial advice. Your full financial needs and requirements would need to be assessed prior to any offer or acceptance of a loan product. Subject to lenders terms and conditions, fees and charges and eligibility criteria apply.