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Is a property crash coming?

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    Property prices could fall by as much as 30% in 2020 according to some economists, however, the latest data from CoreLogic shows it has stayed relatively stable so far.

    MPA spoke with real estate and finance experts about whether property will rise or fall over the coming months and why we should treat doom and gloom predictions with caution.

    Latest data shows signs of stability

    According to CoreLogic’s latest Home Value Index, there was a 0.4% national decline in dwelling values for May; marking the first month on month drop since June last year. At the same time, estimated sales activity bounced back 18.3% after dropping 33% during April.

    According to CoreLogic head of research Tim Lawless, “Considering the weak economic conditions associated with the pandemic, a fall of less than half a percent in housing values over the month shows the market has remained resilient to a material correction.”

    “With restrictive policies being progressively lifted or relaxed, the downwards trajectory of housing values could be milder than first expected.”

    Despite this, he says, longer term uncertainty is still on the cards.

    Prices are set to drop further

    According to buyer’s agent and author of Positively Geared, Lloyd Edge, property is likely to feel the brunt of rising unemployment rates as well as COVID-19 travel restrictions over the coming months.

    “I believe we will see a decline in property prices over the next few months of around 10-15% in some sectors, particularly markets like Melbourne and Sydney – even more in tourist locations.”

    “A lot will be determined by what happens with the Government Jobkeeper payments after September and how many businesses actually go under versus who survives and gets their jobs back.”

    The director and founder of Aus Property Professionals says he expects Sydney and Melbourne to begin a steady yet slow phase of growth in about 12 months’ time.

    “The largest falls will be capitals such as Sydney and Melbourne but they will also have the largest price increases.”

    Supply and demand will keep property stable

    According to Derek Farmer, it is unlikely that COVID-19 will cause a property crash in the coming months.

    The senior credit advisor at Shore Financial points to a gradual tightening of both real estate stock and lending that began during his time as a real estate agent for McGrath in Sydney’s lower North Shore.

    “The whole flippant nature that we used to have of upgrading our homes and moving properties has changed.”

    “People can’t borrow as much as they want and I’ve noticed a gradual tightening of the amount of stock levels since 2015 – which is almost directly proportional to the tightening of lending that started in 2015.”

    He says even though COVID-19 has seen a decreased number of buyers in the market, there has also been less sellers; meaning supply and demand has stayed relatively stable.

    “I just can’t see it happening. There’s a lot of people who have had their mortgages for a long time, they’re not forced sellers and they’ll wait for a strong market to sell again.”

    Too much doom and gloom could leave us misinformed

    Buyer’s agent and co-host of Foxtel’s Location, Location, Location, Veronica Morgan, says it’s difficult to predict how the market will play out following COVID-19.

    “If people do not need to sell, there will be a fall in transactions and this will ensure prices remain stable.”

    “All property owners need to remember that property is a long game. If they've bought a quality asset in the first place, they'll do what they can to keep it, particularly if it's their own home.”

    “Yet not all property owners hold quality assets. There are going to be property types and areas where job losses and negative equity are felt more greatly than others.”

    “If enough of these owners are pressured to sell, we can expect to see some sharp price falls.”

    She says doom and gloom predictions in the media should be treated with caution.

    “The media love a big number in a headline. Economists will issue press releases with their scenarios and we never seem to see the best-case scenario featured in bold print.”

    “A few weeks back Shane Oliver from AMP Capital came out with some modelling of the impact of COVID-19 on property prices.”

    “His scenarios ranged from 5% to 20% price falls and, you guessed it, 20% was the number featured in the headlines.”

    “I recently interviewed him on my property podcast – The Elephant in the Room – and he explained that predictions are so hard to get right because they are made with the information at hand at a particular point of time and they always need to be revised up or down as new information comes to light.”

    She says if we just rely on what is reported in the headlines, we are in danger of becoming misinformed.

    Too much click-bait

    Farmer agrees that there is a lot of “white noise” about property in the media at the moment.

    “A lot of this stuff is basically propaganda in the media right now; it’s click bait.”

    “There are so many articles that aren’t supported by anything,” he says, explaining that they are based on potential scenarios rather than data.

    “Those sorts of statements, if they actually solidify into something, are years and years away, and by that stage you would have missed the boat because the market will be growing faster than your deposit will.”

    “I had clients who sold in the middle of the GFC because they thought the whole property market was just going to completely fall over.”

    “Those people are still renting right now.”

    Farmer says he is helping clients prepare for property purchases by discussing the fundamentals of supply and demand and giving them confidence that “the world’s not going to end.”

    “I also talk to them about contingencies for savings, I talk to them about borrowing capacities and not pushing them to the limits.”

    “It’s a personalised discussion depending on their situation.”

    Helping clients through a buyer’s market

    According to Edge, the current market presents some good opportunities to buy.

    “It is definitely a buyer’s market at the moment and will be for probably the rest of the year.”

    “People who are stable with their income, should become finance prepared, ready to buy and take advantage of good deals.”

    With banks likely to become more conservative, it is up to brokers to think outside the square.

    “Brokers need to be comfortable to recommend smaller lenders and non-bank lenders to their clients who might be able to offer better servicing.”

    He says brokers can also help their clients by educating them on how to demonstrate good spending habits to the banks.

    “Lending may well become harder than it has ever been before, but with good financials it will still be possible.”

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    Original Article