I don’t make this call lightly. And I’m only talking to potential owner occupiers. It’s time to make some low ball offers in the property market.
Why would I say that when my own base case is for property prices to keep falling? Especially in Sydney and Melbourne where I argue that prices will keep grinding lower for several decades and end up 40% lower in real terms?
The following reasons:
- I don’t think of a house as an asset. I see it as a home.
- The RBA or APRA is clearly going to be forced to cut imminently. I don’t see that having a big impact but enough to stop or stall price falls.
- Mass immigration will do the same.
- Our banks are extremely corrupt and regulator history shows that they are unable to resist it. I don’t think that the latest hair-brained scheme for APRA to cut lending standards will get up but it shows how broken and vulnerable the system is to a reversion to credit excess.
- Labor’s property tax reforms appear likely to be watered down by a ratbag senate.
- BBSW is falling and bank funding costs are easing. They won’t cut rates but can pass on more RBA cut now than they could only three months ago.
- Labor is more likely to simulate heavily than the Coalition and might succeed in lifting wages a little in the short term so long as commodity prices remain high.
So, 2020 and perhaps 2021 shapes up as an OK economic year for Australia. It gets tougher again after that as bulk commodities fall away and the income recession intensifies again.
In short, the risk of steep price falls for property next year have diminished. There are already deep prices falls in areas up to 30%. If you see such a bargain then low ball it. If you’re waiting for lower prices to buy then you’re also risking missing out if authorities send the market nuts again. Never forget that buying Australian property is a political economy not market decision.
I also make this call now because I assume it will take six months to buy. To repeat, my base base remains further price falls this year and a long grind lower in real terms for many years. But if you don’t see your home as an asset, and are simply looking to get in at the best price then now looks pretty good to me. You’ll need to be prepared to wear further price falls as a holding cost for the privilege of security, plus build your wealth elsewhere in your asset allocation.
Could the big tumble still happen? Yes, but it is not the base case. It will take another external shock in Brexit, US/China break down or something else. Therefore only buy if you have a decent equity buffer. And make a low-ball offer.
Don’t forget as well that the same calculus works in reverse. When the market bottoms and moves up on stimulus it happens quickly so you want to buy during weakness not rising strength.
For investors the assessment is entirely different. Your game is up. Weak prices. Weak rents. Terrible yields. Reduced tax breaks. Hostile ATO.
Sell and buy stocks.