Will This 2021 Growth Continue?

  • 2 years ago

I spent a lot of 2018, 2019 and 2020 suggesting that prospective buyer should jump into the property market whilst it was quiet, but I believe only a few heeded that advice. We’re now in Sept 2021, 8 months into an upswing and already people are calling out that they missed the boom, and they should now wait for the next crash.

So, is now still a good time to get into the market or should you sit and wait to see what happens?

Since I bought my first property at the age of 22, I’ve always been a contrarian and I’ve typically always done the opposite to what most other people around me have done.

As a first home buyer I borrowed seven times by income rather than three and whilst my monthly mortgage was more than my wages, the rent from letting out my two spare bedrooms more than covered my repayments and so I lived for free.

When I go to the bank to borrow money my first question is ‘How much will you lend me?’ rather than ‘How cheap are your interest rates?’ as I know that buying an extra property or having an extra cash buffer can make me hundreds of thousands of dollars over the years, rather than saving a few thousand by borrowing cheaper.

The same goes for buying property – I want to buy when no one else is buying as I buy for cheaper. And if the market is absolutely flying and people are paying record prices at auction, I’m still keen to buy if I can buy it off market and at a conservative independent valuation price.

In 2018 and 2019 we had the credit crunch and the Royal Banking Commission. So much doubt was in the market and the fence sitters had every reason to justify doing nothing. But that was where the opportunity was – property was up for sale and there were no buyers in the market.

Just as the market was about to turn in Feb/Mar 2020, Covid hit and the same situation – property up for sale and no competition if you wanted to buy.

We’re now 8 months into the next upswing and the fence sitters and naysayers are again calling the market as they know best. It can’t carry on, Covid has come back, interest rates will rise etc etc

In my 30 odd years’ experience investing in property, I’ve seen a number of cycles – ups, downs and sideways. The ups often go for three to five years, then it drops a few percent, goes sideways and then back up again. The main point being it often goes up for three to five years and we’re only eight months into it.

Sure, it has been a fair amount of growth – 10 per cent in the last six months in parts and maybe 20% when you look over the whole of 2021. 20% is high and higher than average but it’s not 40% or 50%. If some property markets double every 7, 10 or 12 years and there’s some years that it goes down or goes sideways then by definition it will need to rise at 20% or even 30% at times to get that 7% – 10% average.

Has it ever really crashed significantly?

Not that I’ve seen, especially if you’re in the blue-chip inner markets that I tend to follow. Sure, you can always find a few examples of where it has, but also you can find just as many examples of where it hasn’t in that same time period.

I bought half my current portfolio in the Global Financial Crisis (GFC) where everyone said it was dropping, but a few years later mine had still continued to creep up.

Lots will depend on what you are buying too. If you’re buying very expensive or very cheap properties or buying in remote locations or areas that are reliant on one industry, then you will be more susceptible to price changes. If you’re buying in areas where there’s thousands of properties for sale, that will make a difference too. But if you’re buying median priced properties in areas where there’s no more supply and there’s plenty of demand from cashed up buyers and renters, you’re more likely to benefit in the good times and less likely to be affected in the tougher times.

I’m certainly not a genius, nor am I an economist or a predictor of the future. However, I am a very unemotional former accountant who does understand the basic economics of supply and demand and how it relates to property in my areas of expertise.

If you read my article last month you will know that most people’s biggest regret in property was not buying more when they had the chance.

I do firmly believe that most markets will continue to rise in the future, and this represents an opportunity that won’t be around forever. Sure, lockdown is making it harder to buy, but in my buyer’s agency I’ve found this is actually an advantage.

We typically never buy at auction as we don’t want to compete with the emotional homebuyer who will pay what the bank will lend them rather than what a property is worth. Many auctions aren’t happening now, and agents can only show buyers through by private inspection. If they’ve got limited open inspection appointments, we’ve found they would rather let a buyer’s agent through with a pre-qualified and motivated buyer than Joe Public who might be a tyre kicker and who still hasn’t got approved for finance as we would have an 80-90% chance of buying and exchanging on it within 48 hours.

With vaccine rates around the country heading towards the 70-80% targets, hopefully we’ll see the country opening up very shortly and then I think it will be game on again.

This article was originally supplied to Century 21.

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