- Predictions of property doom and gloom a year were shortlived
- Within six months most commentators were predicting growth
- Perhaps the last year has taught us the true, lasting value of real estate
Isn’t hindsight a marvellous superpower?
There are armchair experts around the nation whose opinions, after the fact, signal their extraordinary ability to make bold and accurate predictions based on an outcome that’s already known.
Look – I’m not immune to a bit of this myself – who isn’t? It’s always kind of cool after the final whistle to describe how you would have skilfully altered a particular sporting team’s well-planned strategy to ensure victory. If only they’d jumped into their time machine and listened to my sage-like musings delivered well after the game was lost!
But there is an underlying method to the madness of hindsight predictions, and it’s that we are looking to learn from history so as to shape our futures.
The property industry is an excellent example of this.
When real estate professionals gather to opine about current and future market direction, they do so with an eye firmly focussed on the past.
So, what have we learned from 2020, the most unpredictable year in living memory?
As a once-in-a-generation event, most real estate commentators were watching the pandemic unfold and, frankly, winging their predictions. Certainly, they tried to provide educated opinions on what would occur – but so many got it spectacularly wrong.
For example, Commonwealth Bank economists said in May 2020 we could expect Australian house prices to fall 32 per cent in a ‘prolonged downturn’. Fast forward to October and that same group changed their forecast to predict average capital city price falls of just 6 per cent followed by a rise of 3 per cent in 2021.
Looking at the CoreLogic numbers to the end of December, and capital city housing rose 3 per cent in value in 2020.
This isn’t a dig at the Commonwealth Bank. The truth is that any commentators who predicted price rises in 2020 benefitted from some degree of good luck.
But there are lessons to be learned from last year’s market that you should keep in mind when making future investing plans.
The necessity of shelter
This is perhaps the most bleedin’ obvious reason why property stayed sweet when everything else turned sour.
Shelter is one of life’s basic necessities and, as such, it will take a priority in the household expenditure hierarchy.
Disposable income be damned. We need someone to live, sleep, work and play. A home is something we don’t want to live without … whether we own it, rent it or move back in with our parents (note: I did not do this).
So, residential property values continued to be funded by this basic need, while stock prices swung about like a sugar-hyped teenager at a funfair.
Finance is an influencer
Some people have grown cynical over the past decade about the importance of interest rates.
They reasoned that, after years of sub-5% cash rate, we’ve become accustomed to low borrowing costs and further rate cuts would do little to stimulate the housing market.
But look what’s happening now. Historically low interest rates are fuelling demand.
In addition, the high bar set for loan approvals hurt property prices badly from 2017 to 2019. Those who championed more restrictive lending – claiming our banking system was irresponsible in its practices – learned the hard way that stopping borrowers from accessing funds has flow-on effects for everyone, not just property buyers.
The changes and policies implemented in 2020 by banks helped everyone ride through a tough time – and helped power the strong real estate market we’re now experiencing.
The strength of assistance
No matter your political persuasion, just about everyone has to admit our nation’s leaders did a sterling job managing the pandemic fallout.
A bipartisan approach to legislation and protocols kept Australians healthy while also ensuring they didn’t go broke.
The lesson is that when there’s a political will to achieve something as essential as supporting our economy and health, our system of government will find a way.
I have come away from 2020 with a newfound confidence that sectors like real estate are just too important to be allowed to fail.
The superiority of fundamentals
We’ve all known for some time how precious square metreage is, but the lesson was well and truly delivered by the extended lockdowns we all endured.
The pandemic took us back to basics in term of living arrangements. Suddenly, families were thrust into a situation where they had to work, rest, be educated and play in close proximity.
Properties with an abundance of yard space, well-considered layouts and good quality finishes in areas with access to parks and other facilities garnered a premium price.
Sticking with the fundamentals is an excellent mantra on which to proceed with your investment plans.
The supply/demand equation works
Remember in March 2020 when there was talk of real estate bargains due to owners rushing their properties to the market in order to build a war chest?
What we actually discovered is that most property owners had adequate buffers to ride out the troubles. As such, any who didn’t have to sell, didn’t.
The demand/supply ratio swung firmly in favour of sellers and, despite the challenging times, there were too few property listings to sate buyers’ needs.
The result? Property prices remained firm despite Australia falling into its first recession in almost three decades.
The power of confidence
Perhaps one of the most demonstrative outcomes of the pandemic is the sizeable influence of confidence. When we feel confident about our health and economy, we will adopt a higher risk tolerance.
Vaccine rollouts, outbreak management protocols and better-than-expected economic outcomes have seen property buyers open their wallets and act.
As we’ve learned from The Castle – it’s the vibe that matters.
In 2020 perhaps the biggest lesson of all was don’t underestimate the strength of Australian property as an asset of resilience.