We’ve got Covid, a recession and had lockdown all over the place, but property remains strong …….. and seemingly getting stronger?
We all remember the dire predictions in the press this time last year with most property pundits espousing everything up to a total collapse of the property market and by 30% in some cases. So, with property prices remaining not only strong, but up on this time last year in many places, the question is – Why?
Melbourne, the hardest hit of the capitals with a double lockdown, the second in many ways more severe than the first, is still up significantly on the same time last year. Brisbane is also faring well with prices up by around 1.5% in a month.
Source: Corelogic
When I look into my crystal ball to the time when the first vaccine released to the public of the world starts taking effect, all I can see is property prices increasing dramatically as jobs are regained, the economy rebuilds, immigration resumes and confidence returns across the board.
Let’s have a look at some of the reasons that the property situation has held up its end of the economy.
Firstly, not all of the economy has been affected by the pandemic. Construction has still performed well across the country and should continue to do so with the State and Federal Government grants for home building going a long way to support thousands of jobs in that arena up until the end of this month. Mining, particularly in Queensland and Western Australia, has been largely unaffected, supplying jobs as well as much needed income for State and national coffers. Solid employment in the public sector has also provided a bonus for all and particularly the ACT, where property prices have not looked back since March last year. Queensland has also remained one of the most confident States for both sides of the property equation.
Whilst the slogan above had something to do with it, the banks are also seemingly being supportive. God bless their little cotton socks. Do I note a hint of humanity in the banks? Maybe a small amount of customer care and concern?
Not at all!
The banks, while handing out repayment holidays on the surface of it, seem to be supportive to the community, yet are they really still looking after their own interests? They understand that the pandemic, with it’s unemployment increase, loss of business confidence and loss of businesses in total, could possibly create a situation whereby they have thousands of properties handed in from bankrupt owners. This creates two major problems for the banks. Firstly, they suddenly have many millions of dollars’ worth of unpaid loans to contend with. That situation would have their shareholders screaming and would have a greater effect on any bank CEO positions than any number of banking Royal Commissions, ineffectual though Royal Commissions appear to be. Secondly, they would have large numbers of reclaimed properties that they would have to sell under stress conditions. The result of these two situations is that the banks would lose many millions of dollars and very likely insight the ire of their shareholders. So, you see the banks are actually just looking after themselves.
Giving repayment holidays to mortgage holders, while supporting the economy and customers to some extent, merely puts a temporary hold on some of the banks’ profits. Home-owners can get on with looking for jobs and running their businesses without the worry of having to repay the mortgage for 6 months or other prescribed time. The catch is that the interest on the loan doesn’t stop. It just keeps compounding along as it would normally, increasing your loan. In effect, this merely lengthens the term of your loan. Good for this past period if you need it, but no good for later if you’re paying your mortgage for an extra six months at the end. By the way, if you have taken the holiday option, you can negate the effects of this extra compounding interest by paying a little extra off the principal whenever you get a chance. Even an extra $10-$20 will make a noticeable difference at the end of a 30 year loan. As a general rule, if you can do that each week, the difference after 30 years will be thousands of dollars.
The net effect of this repayment holiday on house prices however, is that people are still able to pay their mortgage, so there are very few stressed sales around bringing prices down. Those who were selling back in the panic period merely took their property off the market temporarily and waited out Covid. The best part of this plan is that many came back into the market when prices increased post-Covid. They will continue to increase too by the way. I definitely saw that in my crystal ball. You don’t believe me? Just wait until the first Covid vaccine effects are felt on the market. Prices will continue to skyrocket with all the newfound confidence and joy at overcoming the affliction. You really need to get into your property prior to that time.
You currently have the opportunity to build almost instant equity in a new property, so long as you don’t get caught up in the overpaying frenzy.
Don’t waste this opportunity!
