I'm confused, you probably are too if you are reading the headlines in the news again.
“Buyers Retreating From the Market in Droves!”
Now, last time I looked we were in a property boom, right?
…and the last 12-18 months have been nothing short of sensational profit-wise, even if you have a small portfolio.
Yet, once again the newspapers and non-property investing journos spook the market with outrageous headlines like the one above.
So where did this headline come from? This headline lead to an article based on how many new loans there are in the market based on previous months measures.
“Victoria Slides By 12%, NSW Goes Off The Boil By 27%, QLD 25% and SA 29%”
Based on those figures, you'd be thinking that there has just been a property crash that hasn't quite made the front page news.
…but the figures themselves need further investigation.
Let's have a look at it.
Here's what they relate to… New loans opened specific for properties.
The survey was taken by the Bureau of Statistics for February which highlighted the worst month for new home loans since 2001.
Just an aside here, I can remember 2001 really well. It was just after the tech-wreck. And maybe just a coincidence, the property market took off in 2001 and didn't stop until 2004. It's important that you have some historical information when you look at stats like this.
Anyway, back to the article's prime focus.
In February, a mere 2728 Victorian first home buyers took out loans, down from 4206 in July before the phase-out of the first home owner's boost and the Reserve Bank's string of interest rate increases.
…but in the same article, a long way further down it says,
“The latest RP Data figures show Melbourne prices climbing at a blistering annual rate of 19 per cent and Sydney prices climbing 12 per cent.”
You should be. I would if I weren't a seasoned property investor and understood how to read between the lines.
But let me help you out…
If you had attended one of our recent real estate events with Dymphna Boholt, you'd be able to answer this question yourself.
Dymphna mentioned that certain areas were going to dramatically grind to a halt and even reverse in prices. Those areas are the ones that this article talks about.
It's all of the couples buying their first home and taking advantage of the first home owners boost scheme. Now gone, hence the pull-back on new loans.
You see what happened last year was unusual with how real estate tends to move. Very, very unusual.
In normal cycles, you'll start with inner-city growth and then ripple out towards the suburbs as prices get more expensive and people are pushed out of their first choice and of course settle for the next suburb out.
Making sense so far?
…but in 2009, thanks to the government it started the complete opposite to that. Inner city properties were slow and anything around the $400-$500k mark was on fire.
We of course saw that, and those that attended our events got a head-start on the rest of the market as to what was to happen next.
Let me fill you in…
All of the free money, plus the boost scheme stabilised our economy… Meaning that confidence grew, big companies started spending again and bonuses and promotions were back to normal.
With that confidence (and several other factors), the real estate market returned back to normal and the smart and big money came back in a big way.
What you're seeing now is massive growth in most of the inner-city areas on the East Coast.
Blue chip properties are now on fire with the average clearance rate Australia-wide at 75%.
The outer-lying areas are flat and probably will remain that way for a while. It's these areas that are more sensitive to interest rate rises, which will only add to slowing that market down.
Now I'm not advocating that real estate prices are going to continue at 15-20% growth per annum for the next 3 years. We know that is not going to happen.
…but, here's what will happen.
We will see a consistent and steady growth of 7-10% per annum at least over the next couple of years.
Plus, certain areas will have stand-out performances based on the normal trend of real estate and the ripple effect of 20%+ capital growth.
So what does all that mean?
In the stock market they say the trend is your friend.
In the real estate market, they call it a property boom and spook everybody into doing nothing.
It's time to ride the trend, but be smart about where you buy and what you buy.
Be warned, not all property is suitable for investors. In fact, only 10-20% of property on the market at any given time is actually worthwhile considering as investment-grade material.
I hope this cuts through the B.S. and adds a bit of clarity to your thinking.
Signed with Success,
P.S. I don't just talk about this stuff, recently I signed an unconditional contract on a block of units in a suburb called Coburg. Do your homework and you'll find this suburb is directly benefiting from the ripple effect I'm talking about.
P.P.S. Ok, you probably want to know the numbers… 3 x 2 Bedroom Units at $990,000… $330,000 each. The median for units in that area is $390,000. Don't let people tell you that you can't make money in a booming market.