As media commentary continues to depict dark clouds appearing over the residential property market, we need to constantly remind ourselves that these are in fact times when future wealth can be genuinely created.
The property market today
We have seen some significant falls in Melbourne’s property prices over the past nine months, brought about largely by a change in bank lending policies. Tighter lending practices of the major banks has lead to fewer buyers, fewer properties on the market, lower auction clearance rates and yes, lower prices.
And so does this mean we should all pack up shop and hold back decisions to purchase property? Definitely not! This is the time when you can really set yourself up if you are smart in the way you go about it.
The recession “we had to have”
Let’s cast our minds back to the early 1990’s when home loan interest rates hit highs of around 17% and unemployment in Victoria rose to 11.4%. At this time, the median house price in Melbourne dropped 7.4% in the two year period 1990 to1992. We were clearly in deep recession.
And so what followed? The market made a quick recovery and within 12 months the median house price was back to where it was before the recession began. A relatively flat period followed, after which we experienced an exponential rise in property prices lasting some 12 years with the median house price gaining a whopping 325%.
The Global Financial Crisis
In 2008 the Global Financial Crisis (GFC) swept through financial markets, threatening to destroy the world economies, including Australia’s.
This was widely regarded as the greatest financial crisis the world had experienced since the Great Depression of the 1930’s.
Again, as with the early 1990’s recession, we experienced a sudden drop in property prices… but once again the fall was short lived. By mid 2009, the Melbourne real estate market was back on an upward trajectory with median house prices rising some 30% in just a little over 12 months.
So where to from here?
Some pundits are predicting a major correction to property prices over the next 12 months while others are forecasting a soft landing. Bidpro tends to support the latter scenario.
Even if we were to take the worst case scenario, history tells us that if you buy in the down times, there is big money to be made when the market recovers.
Will interest rates take a dramatic rise over the next couple of years? Probably not, unless we are set for a major world economic reset … and none of us can predict that.
By purchasing in a depressed market, there can be a huge upside in times of recovery.
Will bank lending criteria become any more stringent than it is at the present time? …probably not, the belt tightening appears to be already in place.
It looks awfully like a good time to buying property.
The key is to stick to the fundamental rules -
- Right property, right location, right price.
And remember -
- Quality property can lose value in difficult market conditions but it generally loses the least value, is always the quickest to recover and will always outpace inferior stock.
- When a market recovers, everyone chases the quality stock first and the competition simply drives prices higher.
- Wealth creation can be fast tracked when adopting counter cyclical strategies. By purchasing in a depressed market, there can be a huge upside in times of recovery.
There are quality properties available right now. Many are off-market and most vendors in the current climate are prepared to sell at very realistic prices that reflect the changed market conditions.
It could be a good time to make a move.
Don’t let a dark cloud block your vision!
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