As the ‘Great Australian Dream’ of owning your own home dissipates as property prices soar. Amidst the coronavirus pandemic there no doubt has been some pain suffered by both banks and those paying their mortgage. Here is our outlook on the property market ahead.
Analysis of the housing market right now – is it holding up?
In the absence of quality supply. The housing market in Australia even despite the Coronavirus pandemic, has actually held up relatively well. As a personal anecdote, host Andrew Baxter mentions that locally on the Gold Coast. There is a lack of stock on the market and things are still moving relatively quickly. Meaning that prices have remained fairly plump.
However, it’s important to note that the purpose of this blog is not to talk about what is already happening. It’s to flag what’s coming down the track in the next year or two given there are so many economic warning signs already. Quite frankly, there is only so long you can hold up a property market artificially with government stimulus and economic support.
Why banks have been so important
As we know when the initial outbreak of COVID-19 occurred, many lost their jobs and our great country basically shut down entirely. Working closely with the government. The banks have been immensely supportive by putting those struggling on payment holidays and creating some much-needed leeway.
These payment holidays have then in turn started to stimulate the economy as Aussies began spending their mortgage money. On retail goods and various other accessories. In a time where foreign buying has declined by 96% and businesses need the cash flow more than ever before. Currently, there are now 1 in 10 mortgages are on a payment holiday here in Australia. Which has led to the side effects of dividend cuts for investors and a doubling of mortgage arrears teams. A catch 22 to say the least.
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The risks, long-term
Given now that 10% of mortgages in Australia are currently on hold and we remain within an economic recession, there is a high degree of doubt as to how long we can continue to prop up both the economy and the housing market. Why? Well, any amount missed on a payment holiday is naturally added to the principle amount when those payments resume, more people are losing their jobs and serviceability is rapidly declining.
As banks start to move through the foreclosure process for those who fail to service their mortgage, we’ll start to see pressure for people to start selling their properties. Naturally, with an increase in the supply of properties in the market, we are set to see prices tumble. In this instance, for anyone who has multiple investment properties for example, and who are negatively geared.
You may be in real trouble. Not to mention as landlords compete for tenants given vacancy rates have increased dramatically, yields are most certainly due to decline. Quite clearly, there are many risks on the horizon.
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The stock market – a substitute for property
We all know and understand how property investment works – we buy an asset that will hopefully increase in value over time and we also generate income through a rental return on a fortnightly or monthly basis. As host Andrew Baxter mentions – this same process can be achieved much more easily through the stock market and in a much more dynamic environment. Most people think buying shares is enough. Wrong – that’s like buying an investment property and forgetting to put a tenant in there.
Through the use of financial options, you two can generate a weekly income in the stock market whilst having all the benefits of liquidity and diversification. This is a strategy known as Cash Flow on Demand and is something Andrew teaches through Australian Investment Education. If you see the property market as a risk moving forwards in these challenging times like we do – try taking a look at some other alternative forms of income and investment to keep yourself ahead of the game. We hate to be the prophets of doom – but ultimately there is a grim outlook ahead for property.