History Reveals Where the Real Estate Market Will Be In the Next 7-10 years… This could be your last chance to retire rich!
There’s a lot of positive news coming out of the property market these days, but there’s still a lot of people who want to remind us that for every silver lining, there’s a cloud.
I’ve been doing a lot of cycle analysis of the real estate market over the last 200 years and I have to tell you that I’ve never been more excited than I am today about the prospects and future of real estate investing here and globally.
But let’s talk briefly about the here and now…
Prices have got a year of increases under their belt, some property markets like Perth and Darwin are hot-hot-hot, and interest rates are still like a cattle prod to the market’s rear hide.
But old habits die hard. And some people have been battened down in a bunker with nothing but tinned peaches for so long, that they wouldn’t recognise good news if it jabbed them a cattle prod to their rear hide.
And sure, it’s not hard to tell that story if you really want to.
Prices have gone nowhere for pretty much 5 years, and are still something like 4 percent off their peak (nationally speaking).
“Oh, Jon! How can you stand their smiling, while there’s still first home buyers without Smeg appliances?
“And surely this has been the worst downturn since a receding ice-age wiped billions off water-front property? Isn’t it all just proof that we’re all going to hell in a hand-basket, where the radios play nothing but back-to-back Eddie McGuire?”
Hold on a second there, Daisy.
The first point is that the downturn we’ve just had, while it churned out headlines like secret footage of an Italian president’s pool party, wasn’t that unusual in the scheme of things.
(At least, not for those of us who’ve been in the game long enough to have as many properties as grey hairs.)
Go back to 1980 (oh I wish). For most of that decade, house prices across the county were doing not much. Different cities had different stories going on, but broadly speaking, the first half of the 80s was a fizzer. We had 5-7 years of nothing, and then bang, 1987 landed like a Chuck Norris round house, and prices spiked everywhere.
And then between 1990 and 1995, after the shakeout, prices again went nowhere, wandering aimlessly as rates went to eye-watering levels.
And then what about Sydney? Prices peaked in 2003, and then flat-lined through to 2007, before we finally started seeing some growth again in 2008 – just in time to get side-swiped by the GFC.
So you see, a 5-year growth pause, where prices do sod all, really isn’t that unusual. A broader view of history almost makes the GFC look textbook.
What was unusual about the most recent belly-flop, was that it hit all the capitals at the same time.
If you go back to those periods I was talking about, you could always find one or two cities that were bucking the trend and posting decent results. And what that meant is that people were more able to put softness in particular cities down to local factors – to quirks in the state economy and so on.
But when all cities take a dive together, then it’s easier to write off the entire property market – and to swear you’ll never touch property as an asset class ever again.
I mean, imagine for a second that through these last 5 years, property in Canberra had bucked the trend and had been going great guns. Imagine how that would change your view of things – even though, you probably have no exposure to Canberra, and Canberra has nothing in common with the markets you’re invested in.
I may as well tell you that property in Vancouver is booming (which it is).
But no, as it turned out, the capitals pulled off an impressive synchronised belly-flop, and people started measuring out property for a coffin.
People might then also point out that the recovery data is unconvincing – it’s ambiguous. Prices might be up, but there’s still all sorts of data out there to put a tremor in your pants.
I mean, first home buyer activity is slow, construction data and new home sales still look sick, and no one can remember where they put the confidence.
Honey, check behind the couch will ya?
But that’s exactly what you’d expect right now.
We’re at the turning point in a cycle. If all the data were pointing to booming conditions, then… well, we’d be in a boom.
But we’re not. Not yet. And that’s exactly the point. These are exactly the conditions that you want to be looking out for. Those moments were the direction is obvious to anyone with eyes to see, but the herd is still nervous.
If you wait for definitive confirmation, then you’ll either be waiting a very long time (because very rarely do all the data line up together in point in the same direction)…
You’ll just end up running with the herd – with everyone else who doesn’t want to be the first penguin in the pond. You’ll still make some decent returns. But the opportunity to make a real killing will have passed you by.
Buy low and sell high right? Well the sweet chariot is swinging low right now. Real low.
Do this exercise if you still don’t believe me.
Get a piece of paper and divide it into two columns. Call one Property Pros and the other Property Cons.
Then put all the factors you can think of into each column.
In the pro’s you’ve got a year’s worth of price increases, record low interest rates, global money machines on over-drive, affordability strong and so on.
Then do up your cons. Construction’s still soft (though restricted supply could actually be a positive for prices), FHOG’s cut, mining boom might go bust, global economy might crash, maybe this time it’s different etc
Now tell me how many of your cons are actually facts, and how many are just hypothetical’s, just expressions of fear.
If it’s a fact, then you’re thinking for yourself. If it’s a fear, then you’re thinking with the herd.
I know what you’d rather be doing. And I know what’s going to make you more money.
And it’s not investing like a wildebeest.