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Part 3 - Don't be lulled into a false sense of security

Posted by James Cagney on 24 June 2020

Many property Spruikers are blurting out the usual clichés like "Out of every crisis comes massive opportunity", in an unethical attempt to get you to buy NOW!  Well the property market is not the place for those who are after quick profits.  Try the share market instead.

These Spruikers mention that after the Global Financial Crises (GFC) the growth in property prices was amazing and many people became rich. Yes many people did make money but the GFC crises is nothing like the current crises we are in because of COVID-19.   

Yes, property prices throughout Australia did increase after the GFC from 2012 to 2018.  However, during 2019 property prices fell by 10% and in 2020 they are predicted to fall by 7% to 15%, which is more than they fell during the GFC.  In many cities and regional areas in Australia property prices back to pre-GFC levels. What are these Spruikers talking about?

We need to be mindful that property growth and falls perform in cycles. I have covered this in many of the eBooks that I have written (which you will be able to get FREE by going to my website www.jamescagney.com.au) or click PROPERTY CYCLES. Briefly, prices fall and are flat for two thirds over the life-time of the property and only start and continue to grow for one third of the time.

One of the major factors to the increase in property prices after the GFC was due to the trategy of the Reserve Bank of Australia (RBA) to slash theb cash rate from 4.5% in November 2011 to 0.25% in January 2020. Although the banks did not pass on all the reduction this strategy lowered the cost of borrowing and restored confidence in the housing market. The inevitable result was people could borrow more and took out larger mortgages, so positive sentiment returned and housing prices subsequently increased. Unfortunately, debt is time spent and borrowed money has to be paid back in the future.

For those who lost their jobs due to COVID -19 were fortunate that the banks, under Government pressure, took a benevolent attitude and gave lenders a mortgage payment holiday. This will likely end after September 2020 and many borrowers will be unable to pay their mortgage and other debts. That is going to devastate borrows credit record and destroy their opportunity to borrow moneyn and invest for a long, long time.   

The RBA's cash rate is lowest it has been at any point in Australian history, and the RBA is unlikely to reduce the cash much more because concerned about deflation. Without the dramatic 4.25% drop in the cash rate in nine years after the GFC we are unlikely to see the same growth in property prices that we experienced again.

With bank interest rates on cash deposits so low, investors are looking for eagerly looking for better returns. Investors are flocking to the share market, which is extremely volatile and unpredictable. Investors do not like uncertainty and real estate is still deemed to be safest investment to turn to. This will help to keep property pricr drop at bay. 

Two concepts within the real estate market to consider are "Timing the Market", and "Time in the Market".

Spruikers always tell you, before you purchase a property, that this is the right time to buy.  "BUY NOW" they say it's "Timing the Market" that will make you rich! However, when you do not experience the exponential growth these spruikers promised you, and you dare question them, they go to the position "You need to be patient and wait for growth because its Time in the Market that is important". How convenient and conniving these real estate agents are!

Author and property investor Steve Mc Knight says "Invest in whatever makes the most money within your time frame, with the lowest risk and with the least amount of aggravation". Good advice going forward through the Coronavirus pandemic and after September 2020.

If you would like to know more about the property market  in Australia go to www.jamescagney.com.au . Or Click HERE to access my FREE eBooks which cover these principles about making money in Real Estate a reality and not a pipe-dream. Like to chat about your opportunity to invest in property call james Cagney on +61 416 137 645.  

Author: James Cagney
Tags: Part 3 - Don't be lulled into a false sense of security
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