Property Values in A Recession
Just as economists have predicted, we are now heading into a recession.
The IMF also expects Australia’s economy will contract by 6.7 percent in 2020 and then rebound by 6.1 percent in 2021, assuming that measures to contain the virus are successful.
Economists seem to agree that the domestic economy is likely to experience a V-shaped recovery when it eventually comes.
Australia last experienced two consecutive quarters of negative GDP growth (a recession) in 1990-1991.
Back then property prices had been flat or falling around the country even before the recession started.
Melbourne was in a deep recession and people were fleeing the colder weather to move to sunny Queensland.
What will happen to Australia’s property values in this recession?
A drop in consumer sentiment and weaker economic conditions will again impact dwelling values, but how much they fall remains uncertain and will depend on how long it takes to contain COVID-19, how long the social distancing regulations will remain in force and future additional government support if any.
Some experts believe house prices could fall by as much as 20% or more, especially if the lockdown persists, and unemployment levels get very high in a worst-case scenario.
At the time of writing, it has been four weeks since the government shut down non-essential services, placed a temporary ban on property auctions and open inspections and essentially halted the economy in response to COVID-19.
Corelogic recently reported that their Hedonic Index has been showing a loss of momentum in housing value growth rates since mid-March. Data through to mid-April has seen a continuation in this trend, with the combined capital city measure slipping into negative territory week-on-week for the first time since early August last year.
A-grade homes and investment-grade properties are likely to fall a little (5- 10%) moving forward, this is a great time for cashed-up investors and homebuyers planning to upgrade to buy a property considerably cheaper than they would have had to pay a few months ago, and for considerably less than they will have to pay this time next year.
B-grade (secondary) dwellings may fall in value by 10-15%
C-grade properties are likely not to sell at all.
Sure there are fewer good properties for sale at the moment, and almost all the good ones are for sale off-market.
So is now the right time to buy a property?
Having spoken with many property investors, business owners and entrepreneurs recently I’m finding opinions split three ways…
Some are fear focused. They are panicking and reacting to the market sentiment without taking a measured long-term view.
There are others, for various reasons, going into hibernation mode, and
A small group of strategic investors and business owners I am spending a lot of time with working to position themselves for the future.
This is the time to set up a strategic property plan which involves thinking through financial and ownership structures whilst doing the appropriate research to establish what to focus on when the time is right.
If you’re looking to be strategic about possible buying opportunities it’s never too early to start. Book in an obligation-free call to discuss your position confidentially: https://www.sandcastlefinance.com.au/contact-us/#book