(03) 9020 2905I’m no fan of naysayers. Negative people, in general, can sod off out of my presence, thank you very much.
And given a choice between having a laugh and having a good old blithering, tissue-soaking sook, I choose giggles. The Goodies? Or the episode of A Country Practice where Molly dies? The Goodies everytime.
But pessimists have a place in society. We need them. The whole yin and yang of the solar system wouldn’t be right unless there was someone who could say “told you so!” when things turn to poop. For everything that happens, we need someone to claim to have predicted it.
“Climate change? Are you going to bang on about green politics? Boring!”
Naaah. Julia’s and Bob’s carbon tax is a topic for another day.
I’m talking property.
There are so many people out there dying to say “I told you so” with Australia’s “inevitable property catastrophe”. But let’s get one thing straight. It’s “possible”, maybe “probable”, but not “inevitable”.
Hardcore property bears have been lining up for years. The reason they wake up in the morning? To pick up the paper and read “Property prices plunge 30 per cent”
Lucky they haven’t been holding their breath. They’d have died, or at least passed out, years ago.
According to them, property Armageddon is approaching. And when it happens, we’re going to see a destruction of household and national wealth, the likes of which we’ve never seen. So they say.
Take economist Professor Steve Keen. Bless him. Nice guy.
If property prices slump, Steve has dibs on saying “Told ya!” He earned that as one of only a few economists to predict the GFC. His peers gave him a gold star.
What he’s really dying to get right is his call right for the “Great Property Crash of 2008”. Sorry, the “Great Property Crash of 2009”. Erm, the “GPC of 2010”. Okay, maybe the “GPC of 2011”.
So, is a GPC descending inevitable? And what should you do about it?
I doubt it. But it’s possible. So let’s give those negative buggers some air.
Property prices have been falling nationally for last nine months, according to RP Data.
Overall, prices nationally are down around 4 per cent this year. That’s worse than it sounds. Because of inflation, prices need to increase on average 3 per cent just to stand still. A 4 per cent fall is really more like a 7 per cent fall.
Then let’s add interest rates. The Reserve Bank is salivating to push rates up to fight inflation. Teeth gritted, they haven’t since November last year. They were itching to lift rates to 5.5 per cent at least, but they’re stuck on 4.75 per cent.
Given that, the outlook for property prices, in October 2011, is negative. Don’t shoot me – I’m an optimist. But, yes, it could get worse from here.
One question would be: “how much worse?” The other question is: “Should I care?”
Current homeowners
No. If you’re happy with the price you paid for your home – however long ago that was – then who cares? If your job is reasonably secure, sit tight and enjoy the renovations you’ve just completed.
About to purchase?
This is tricky. Buy now? Or wait until prices fall further? If property prices do fall by 20-30 per cent, then, believe me, you are actually far less likely to want to purchase. Do you know how to catch a falling knife? Buy when you can afford to buy. Can you meet the mortgage repayments if they rise 2-3 per cent.
Trading up?
Don’t worry. You’re selling and buying in the same market. Ultimately, if you can time it in a falling market, you’d sell first, then buy second.
Investment property
This is the one that matters most. But, also the most flexible. Property investment is about making money, pure and simple. If you believe property prices are going to fall, you’ve got time up your sleeve. If you think that they’ve bottomed, then plough in.
If you happen to see Professor Steve in the street … just smile. I doubt it, but we might have to bow down to him some day.
Bruce Brammall is the author of Debt Man Walking (www.debtman.com.au) and a licensed financial adviser. bruce@debtman.com.au .