Well, well, well. The magic question. What’s in store for the future? If only we could tell. If only someone could look into the future and tell us what’s going to happen, then we could make the right decisions.
Or could we?
In the end, it doesn’t matter because I don’t think anyone can tell for certain what’s going to happen in the future. We can guess. We can believe. But, we don’t really know until the time passes. We don’t know until the events become part of history. And, even then we don’t really know sometimes because what happened depends on a person’s point of view! And, if we read about it then we get that particular point of view even though it may be skewed; biased; or even wrong.
So, where’s the Australian property market going?
Of course, I’m like everyone else, in that I don’t know.
But, the climate sure feels familiar. To me it feels similar to late 2008.
Remember late 2008? Lots of concern. We inherited a new acronym “GFC.” Stands for Global Financial Crisis. Interest rates were high. People were frightened thinking, “When is this financial tidal wave going to hit our shores in Australia?” They were battening down the hatches, lookouts in the crows nest watching for signs of the impending tsunami.
Then 2008 turned into 2009. The Australian Federal Reserve Bank lowered interest rates drastically. My portfolio went from about break even to a very healthy positive cash flow. I locked in my loans at these low fixed rates.
And another thing happened. The rents in Alice Springs started going up; going up a lot. House prices were the same but interest rates dropped to historical lows and rents were skyrocketing. This is exactly what a property investor is looking for. So, I went out and bought some more properties, achieved high rents and locked these loans in at the historically low rates.
While I was scurrying about taking advantage of the favorable property investment environment I noticed something. There seemed to be a lot of negative talk about the market. The most common advise seemed to be the standard, “This is not a good time to invest.” The rationale being that when the GFC hits Australian shores, you’ll get wiped out financially.
And, it seemed at first that people were listening to the advice. As I went looking for properties in Alice Springs, there didn’t seem to be much competition. There didn’t seem to be many people out there so I could take my time and negotiate until the deal looked acceptable. This was about the January to March 2009 timeframe.
Then came the twist. In about April, the local Alice Springs market came alive; very alive. I guess people got over their fear of the dreaded GFC. They kept waiting for it and it didn’t come. As they waited they saw the deals. But, the stock news advice was, “dont’ buy now!’ And, they listened. But, they could only listen for so long. The deals were stacking up; they made sense; interest rates were low; rents were high. The battle cry became, “What am I waiting for?”
And so, the rush was on. People started buying like crazy. Houses were selling routinely for more than the asking price. Normal sales turned into virtual auctions where the highest bidder got the home. I was involved in one such bidding war and lost out. I played along putting in an offer at $5,000 over the asking price and lost out. The winner put in a extra $15,000 and got it. So, the owners got a $15,000 bonus, essentially paying the realtor’s commission.
I knew the run was over. I knew it was time to step back and let the market heat up. Watch the frenzy as people come to the realization that this is a great time to buy.
And, now looking back we can see … it was a great time to buy. People who bought in Alice Springs back then are sitting on some healthy equity. Even with the recent flat or slightly dipping property market, the Alice Springs buyers from early 2009 are sitting pretty.
So, what does this have to do with the future?
Well, like I said, the current property climate looks an awful lot like the one I saw back in late 2008. It’s now November 2011 and interest rates have just made a downward turn. The talk is about lowering them again in early 2012. The property market is flat and people are generally afraid to buy. The news tells us we should be bracing for another GFC like economic turn down; a second wave so to speak.
If the interest rates keep dropping next year, and housing prices stay flat and the high rents persist, then early 2012 may present some great buying opportunities for investors.
And, that’s what I’ll be looking for … some great buying opportunities. I’m always looking. But, it’s easier to find the deals when certain conditions come together as follows:
1.) Rents are high
2.) Interest rates are low
3.) Home prices are flat or going backwards.
4.) Most people are scared out of the market by the “bad news.”
What’s your feeling about the Australian property market and where it’s headed?