Why the doomsday merchants always get it wrong.
Real estate investors should tune out the media white noise and get on with the business of buying good property in the right locations, according to property expert Jason Paetow.
Paetow, the managing director of property advisory AllianceCorp, was guest presenter on this recent Hotspotting webinar to discuss “why the doomsday merchants always get it wrong and how property continues to make fools of the forecasters”.
Paetow says residential real estate typically moves through cycles with highs and lows – and the history of Australian real estate shows that while booms are always followed by corrections, the Australian market has never undergone a major crash.
Speaking to Hotspotting founder Terry Ryder, Paetow’s five key takeaway points were these:
· Media misinformation is causing investors to make the wrong decisions
· A short-term drop in values isn’t the end of the world
· Claims that values are crashing are not supported by the research evidence
· Investors should disregard the doomsday forecasts
· Strategy is more important than timing.
MEDIA MISINFORMATION CAUSES INVESTORS TO MAKE BAD DECISIONS
Paetow says he has seen firsthand, after working in the market for 20 years, the effect media misinformation can have on real estate consumers.
“People looking to get into the market or novice investors wanting to leverage off property can be deterred by bad reporting,” he says.
“The sensationalised media reports tend to make would-be investors procrastinate or decide not to buy – and they miss out on huge opportunities.”
Paetow says that during the recent property boom, those who delayed taking action because of negative media in 2020 ended up paying as much as $200,000 more for the same property by the time they decided to act in 2021.
WHY A SHORT-TERM DROP IN VALUES ISN’T THE END OF THE WORLD
Paetow says investors should not be concerned even if property values do experience minor decreases in the short-term.
“People need to be aware of why the media reports the way they do and be wary that if they’re making investment decisions based on headlines, chances are it will be a very costly mistake,” he says.
“We say to all our clients: if you’re looking at a longer-term strategy, it’s about time in the market, not timing the market.”
Those who have been investing for a long time realise that it is normal for markets to fluctuate, with booms followed by minor corrections – and short-term decline doesn’t spell disaster.
Paetow says if investors pay too much attention to negative reporting they’ll never get ahead with their portfolios.
“A good strategy can allow you to buy properties that are either neutrally geared or cash flow positive,” he says.
“So if you bought a property and it didn’t grow value immediately, it doesn’t impact your position because that doesn’t change your cash-flow situation.
“It just means that you have to be patient and wait for the property to come back a little bit. It’s a normal part of the property cycle.”
ARE VALUES REALLY CRASHING?
While some newspaper reports claim there’s a housing crash, Paetow says that is far from true.
“We’ve lost a few percent in some of the states, but others are still in the positive,” he says.
“We’ve just come off an incredible boom, where some of states have seen increases of 20%, 30%, and even 40%. So, to lose a few percent here and there is not a major issue and it’s certainly not a housing crash.
“For people who held on to property during our last property boom, some of their values have gone up 20% or 30% on average.
“The national median price rose about $200,000. Does anyone really care that their property may be dropping a couple of percent in the short-term, when they’ve made such significant gains?”
DISREGARD THE NEGATIVE FORECASTS
Paetow says some economists forecast drops in property values of 20% or even 30% when Covid first arrived – but from early 2020 through to April 2022 Sydney house prices increased 30%, Melbourne 30%, Brisbane 45%, Adelaide 47%, Perth 25% and Hobart 37%.
Those who held off on buying during that Covid period are now shocked at how much prices have increased since the time when they had originally wanted to buy.
“They’ve incurred significant losses in terms of opportunity costs by reacting to those media forecasts,” he says.
The same failed forecasters are now making similar negative predictions for the next 12 months or so – and should be ignored, based on their forecasting records.
STRATEGY IS MORE IMPORTANT THAN TIMING
The most important factor in the current climate is the individual’s investment strategy.
Paetow says those with a narrow strategy – buy low and sell high within a short period – need to carefully time when they buy. But for the 99% of property investors who are in it for long-term gains, timing your purchase doesn’t really matter.
“If your time horizon is long-term, the rule is to get into the market when you can next afford to – if you’ve got the deposit and the bank will lend you the money, take action,” he says.
He says affordability may start to improve slightly in the current climate and that will result in more market activity which will eventually lead to further price growth.