The Big Banks were WRONG in 2020... Will they be right about the property market in 2021?

By Simon Buckingham | 10 Dec 2020

For much of this year investors were bombarded by "doom and gloom" headlines about the future of the property market. However, in spite of the pandemic and recession, I’ve been confident throughout 2020 that a property market crash wasn't on the cards.

In fact, my colleagues and I went on record in April with our analysis that property prices would most likely fall only gradually and by single digits across the middle of 2020, before rebounding in late 2020 / early 2021. (Which is exactly what has happened!)

But the big banks and most economists had a different view, and their own predictions ranged from dire to apocalyptic!

Back in May, Westpac and the ANZ were both predicting a 10% decline in national property values. The NAB predicted falls of up to 15%.

Not to be outdone, the Commonwealth Bank also made headlines in May with a claim that house prices could collapse by up to 32%!

My how things have changed!

Lately the big banks have reversed their forecasts for the property market.

ANZ is now predicting 9% growth in 2021, the NAB and Commonwealth Bank are forecasting 5% growth, and Westpac sees a 15% "surge" in property values over 2021-2023!

Many economists have also now backtracked on their earlier dire outlooks...

For instance, AMP's Chief Economist Shane Oliver, who as recently as August had forecast price falls of between 5-20% around the country, commented this month that "the property market has held up a lot better" than he anticipated 6 months ago, and might even see average capital city dwelling prices beat their September 2017 record highs by April next year.

And head of SQM Research Louis Christopher is now predicting capital city prices to rise by 5-9% in 2021 - a far cry from the 30%-fall-in-12-months scenario painted by SQM Research back in April.

It's astonishing to see just how consistently wrong all the big banks and economists were in the first place... and a little disturbing because many investors and home buyers actually bought-into these highly inaccurate forecasts.

Many investors will be wondering if the banks' 2021 forecasts will be any more accurate

I'm not one to say "I told you so!", but…

Back in April, as the pandemic began to take hold in Australia and we could see the potential economic impact, the Results Mentoring team went on record forecasting that property values would likely decline gradually by single digits over the year before bouncing back in late 2020 / early 2021.

Here are some of the statements we made "on the record" at the time:

"The recent run-up in prices was driven by owner-occupier demand, NOT investor speculation. This provides inherent support for property values and mitigates against volatility in the property market."

"As demand falls, supply is falling too (as sellers keep their properties off the market) which will help support prices or mitigate price falls."

"We anticipate a noticeable drop in transaction volumes and a (temporary) slow down in the market. City median values may show some pull-back, but this will obscure individual suburb performance, with many suburbs maintaining value."

"High numbers of forced sales are very unlikely due to the banking sector allowing up to 6-month deferred loan repayments for impacted home owners."

"Stimulus and support measures are creating the foundation for a significant and sharp rebound late 2020 / early 2021."

In fact, the property market in 2020 has tracked almost perfectly in line with our predictions.

How did we get it right when so many banks and economists got it wrong?

We based our forecasts on the same proven analysis and predictive techniques that we had used to accurately pick the bottom of the property market in May 2019, and the subsequent boom in property values in much of the country during the latter half of last year.

Our analysis was built on an understanding of how the property market in Australia actually works...

It's a basic understanding of property market dynamics that, surprisingly, most economists still fail to grasp.

Most property investors don't understand it.

Most in the media certainly don't.

Yet it's so simple, and really comes back to some of the most basic of economic principles -- which is why it's so surprising that so many banks and economists just don't get it.

Economics 101

You see, it's not pandemics, or recessions, or unemployment rates, or wages growth, or government grants, or even interest rates that drive property price behaviour.

If that were true, then property values in every suburb across Australia would always behave the same way at the same time.

But in reality they do not.

What drives price behaviour in real estate is exactly the same as what drives prices for any other "product"...

As any high school economics student would know, the prices of goods and services move up and down in response to the balance of supply and demand.

And it's no different for property.

(Every economist should know this, but for some reason when it comes to Australian real estate they think the basic rules of economics somehow don't apply!)

When attempting to predict the property market, most economists focus just on the DEMAND side of the equation - what's influencing buyer activity - while failing to understand what's happening on the SUPPLY side.

The pandemic naturally dampened demand from buyers for property in many areas, as people worried about their job security or couldn't even inspect properties due to lockdown restrictions.

But at the same time, sellers restricted the supply of properties in the market. They took existing listed properties off the market, and put off listing their homes while they waited for greater certainty about the outlook.

Because of measures taken by the Government and the banks to ease financial pressures during the pandemic - like income support and loan repayment holidays - those sellers who did not have to sell simply didn't list their properties.

So, while demand fell temporarily, supply also fell - keeping the overall market more-or-less in balance... which helped support property values and prevent significant price falls.

It's simple economics, really!

No Single Property Market

It's also not enough to just consider the overall level of supply and demand across the country, or even across a State or city.

We CANNOT treat the Australian housing market as if it is just one single market where all areas perform the same.

(Yet this is another mistake that most economists and, in particular, property market doomsayers commonly make.)

Rather, the Australian housing market is a collection of around 15,000 individual suburbs - each representing its own unique market with its own unique balance of supply and demand.

This means that even in a pandemic, there will be suburbs where prices are going up, down or sideways - while others perform differently.

As sophisticated property investors we need to understand what's actually going on in the specific suburbs where we hold real estate or plan to invest - a rather than fretting about generalised forecasts from economists (which won't help you make any kind of informed investing decision).

A big reason why our forecasts have turned out to be accurate, while most banks and economists got it wrong this year, is that we understand the need to examine the dynamics of the property market right down at the individual suburb level.

This is the ONLY way to see what's really going on, and to make informed forecasts about what's most likely to happen to property prices.

(If you’re interested in learning how to do this kind of analysis yourself, then make sure you register for one of our upcoming free online workshops where we'll also be presenting our very latest property market forecasts using these proven techniques.)

So, what’s really ahead for Australian real estate?

Banks, economists and the mainstream media are only just waking up to the fact that the outlook for property values in 2021 is very positive.

All capital cities and major regions are showing growth in property prices according to the latest statistics.

Of course, some areas will see prices rise faster than others, and it's essential to undertake intelligent research and due diligence to determine which locations will outperform, rather than just picking any property and hoping it will go up in value.

Consumer and business sentiment is improving, with progress on COVID-19 vaccines to have further positive impact. Record low interest rates and recent tax cuts are also helping to underpin property values.

Major changes in the pipeline are likely to further stimulate demand for property, with easier borrowing rules, stamp duty reforms / incentives and more coming in 2021.

But with home buyers and investors returning to the market faster than sellers, buyers are likely to face a shortage of supply next year.

And as property prices are a function of both demand AND supply, more buyers than sellers means property prices are likely to keep rising into 2021

Fortune will favour those investors in 2021 who are well-informed and ready to act quickly!

- Simon Buckingham

If you'd like to receive the latest informed forecasts for the property market, learn practical techniques that can help you evaluate potential property deals, and practical strategies for adapting to changing market conditions, then watch out for our upcoming free online property investing workshops.

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Simon Buckingham is Director of Results Mentoring and a highly experienced investor. Simon has been investing in property for over 15 years using a broad range of strategies including positive cash flow, renovations, property development and commercial properties, both within Australia and overseas.

Holding university degrees in Commerce and Law, and with over 10 years' experience as a business consultant, Simon turned his back on corporate life forever following the births of his two children and now spends his time investing, developing property, supporting multiple charities, and building businesses - while teaching others how they can do the same. He has personally coached hundreds of investors in techniques that can be used to profit from property in any market conditions, regularly facilitates public workshops and provides other free resources for property investors through ResultsMentoring.com, and has presented to thousands of people at property conferences and seminars around Australia and New Zealand.

Simon writes the highly regarded Sophisticated Property Investor e-newsletter and his opinions on the property market and real-world investing strategies have featured in Your Investment Property magazine, Smart Property Investment, Channel7 News at 6, Kevin Turner's Real Estate Talk, and Property Observer. He is co-author of the critically acclaimed property book The Real Deal: Property Invest Your Way to Financial Freedom, and a founding Mentor in Australia's award-winning personal mentoring service for property investors: the RESULTS Mentoring Program.

Disclaimer: while due care is taken, the viewpoints expressed by contributors do not necessarily reflect the opinions of Your Investment Property.

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