Waiting for property prices to drop before you buy? You may be disappointed.

Author – Graeme Salt

During a recession, prices drop – right?  Not necessarily.

The last time we had unemployment numbers this bad, Sydney experienced 13 per cent growth the following year.

Following the GFC, Sydney prices increased 16 per cent in 2009.

Property prices have multiple drivers and, today, not all are pointing South.  Some of the key drivers are

– Population growth

– Interest rates

– Unemployment and wages

– Supply and demand

There’s no doubt that, with the borders closed, Australia has lost the key demographic driver of the past decade.  Where once, there were c300,000 new Australians every year, population growth will dry up to a trickle – removing a key engine of growth.

But, beyond that, other market drivers are either neutral or positive.

Interest rates remain ultra-low and are likely to remain so for the next couple of years or more.  And banks are being very accommodative to those struggling to make repayments – either by granting payment holidays or allowing investors to extend interest-only periods. 

As a result, it is unlikely we will see the forced-selling of property we feared a few months ago.

While our unemployment figures are going to be a shocker in coming months, again, they are nowhere near as bad as we feared.  JobKeeper and JobSeeker have had a huge impact and it is to be hoped that JobMaker will also lead to greater investment in jobs.

In fact, as the graph below shows, we are about to experience a tsunami of government spending that may well be bigger than wages lost to the economy!

The more there are people in work, the more they can afford a property – and some banks are even lending to those on JobKeeper!

With less forced sellers, the less the market will be swamped with properties that have to be sold at any price – and we are seeing that today.  Research by Corelogic shows that properties listed for sale are 26 per cent lower than this time last year (itself a flat time).

Sure the market is far from hot – but neither is it in free-fall.  Believe it or not, the market will be saved by a cobweb.

Economists talk about the cobweb theorem – where a low supply causes prices to rise! (see graph)

For now, it’s likely that this low supply will put a floor under prices.

It’s too soon to predict price growth.  But, if you are waiting to buy after a price collapse you may be waiting a long time.

Graeme Salt is a leader of The Futurus Group whose brands primarily comprise Origin Finance, Chan & Naylor Finance as well as Walker & Miller Training. For a no-obligations consultation on your finance needs please contact him on 1300 30 67 67.