Where Next For Melbourne Property Prices?
COVID 19 and the Melbourne lockdown has created an unprecedented set of circumtances in real estate. With property inspections banned for a number of weeks, we are presented with a unique dilemma. What will happen to property values in Melbourne when the market re-opens?
One thing for certain is that there will be a lot of real estate activity when the market returns. I expect that there will be some vendors that have decided to sell due to the adverse impact of COVID on their income/occupation and combined with every other vendor that had put their selling plans on hold, it should be a great time for buyers as there is likely to be a lot of stock on the market.
Heightened stock levels might lead to some decline in prices but for that to occur, the sellers must outweigh the buyers and I am not sure that this is what we will see. Predictions for unemployment, small business failure and other adverse COVID impacts right now are pretty dire but a lot of that is driven by the sheer uncertainty of the times. Optimists will be banking on a potential “boom” in economic activity as soon as certainty returns to the market, probably due to a vaccine.
Predicting property prices has always been a gamble. Here are 3 broad opinions of how the real estate market will pan out:
The pessimists are right, unemployment sky rockets, many property owners are forced to sell, sellers far outweigh the buyers and property prices fall.
The market stalls. We saw this happen after the Global Financial Crisis in 2008. Uncertainty can lead to people sitting on their hands, unwilling to make a move. Vendors don't want to sell and buyers don't want to buy and both for the same reason - they are not confident of whether now is the right time to act.
The optimists are right, unemployment and business failure turn out to be not as bad as predicted, property stock levels remain reasonable/normal, buyers hoping for bargains flood the market and property prices maintain or increase over current levels.
I've spent over 20 years helping people to buy property in Melbourne and here are my recommendations:
Property is a long term proposition. If you plan to hold the property for the long term (5 - 10 years+), any spike downward or upward is likely to even out.
Buying with the hope for short term value gain and looking to sell for a profit is ALWAYS a gamble but that gamble/risk is particularly high in the current market.
Don’t lose sight of the fundamental value of a property – shelter. If your intention is to buy a home to live in for the long term then buying now could be a very wise move. Taking advantage of record low interest rates and working hard to pay off debt could be a great move if you are confident in your income/employment prospects.
Residential property is the highest quality “security” a bank can take for a loan. The reason? People always need a place to live, no matter the economic circumstance. Yes, supply and demand for residential property will always fluctuate but people’s fundamental need for shelter never changes. In difficult times, people may look to “house pool”, such as adult children moving back in with parents and this can lead to a reduced demand for residential property (and oversupply) but these moves are likely to be short term and can create activity if they were to be long term. For example, an expanded family can drive the need for a larger property to accommodate everyone. This could result in a buy/sell transaction.
It is extremely difficult and almost impossible to accurately predict property price movements. There are just so many variables. The very best economists in the country are able to make forecasts but they themselves know that this is not a guarantee. It is just a ‘view’ based on current known factors.
The bottom line? If you need a home, are confident in your post purchase equity/savings position and income prospects, then buying now could be the best step you could take. The gamble on price however does not go away for it is only in the future where you will be able to look back and do the sums!
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