n May, I
wrote a blog after CBA released its bearish ‘worst case’ forecast for the property market. It predicted a 32% drop in prices! I outlined in my blog why I thought that was rubbish and prices would not fall by more than 10%. To date, according to various data sources, property values have not slipped by much more than 2% to 3%, which is barely noteworthy.
CBA revised its forecast on 9 September admitting they got it wrong.
Now that the virus is under control in Melbourne (and also nationally), I thought it was an opportune time to share my forecast for next year. It is my view that prices in well-established, inner-city, blue chip suburbs will rebound strongly in 2021 and deliver double-digit growth.
I set out the reasons for adopting this view below.
Covid has hurt low-income earners and younger people the most
Unfortunately, lower-income earners have been more financially vulnerable to the impact of Covid. They tend to work in occupations that do not lend themselves to working from home. In addition, industries such has hospitality, travel and tourism have been severely impacted, especially in Melbourne. As such, Covid has disproportionately affected lower income earners to a much greater extent.
A high proportion of middle and higher income earners are likely to either recover their income back to pre-Covid levels very quickly or haven’t been impacted at all.
In fact, there is a large cohort of people that are in a stronger financial position today. That’s because their income has been unaffected, their discretionary spending has reduced e.g. less eating out and no holidays and interest rates are at all-time lows. As such, many people have either accelerated debt repayments or accumulated more savings.
The best evidence of the financial strength of this cohort is reflected in the credit card spending data compiled by the banks. This data gives us a real-time indication of how much people are spending by category. Overall consumer spending is up 5% compared to last year. This demonstrates the unaffected cohort more than makes up for the people that have lost their jobs and income. This thematic is likely to translate to the property market too, especially in blue-chip suburbs.
Low rates will inflate asset prices
It is a generally accepted eco
Do you have a question? Email: questions@investopoly.com.au or for a faster response, post a comment on the episode's video over on YouTube: https://www.youtube.com/@investopolypodcast/podcasts
If you're interested in working with my team and me, discover how we can work together here: https://prosolution.com.au/prospective-client/
If this episode resonated with you, please leave a rating on your favourite podcast platform.
Subscribe to my weekly blog: https://www.prosolution.com.au/stay-connected/
Buy a one of Stuart's books for ONLY $20 including delivery. Use the discount code blog: https://prosolution.com.au/books/
DOWNLOAD our 97-point financial health checklist here: https://prosolution.com.au/download-checklist/
IMPORTANT: This podcast provides general information about finance, taxes, and credit. This means that the content does not consider your specific objectives, financial situation, or needs. It is crucial for you to assess whether the information is suitable for your circumstances before taking any actions based on it. If you find yourself uncertain about the relevance or your specific needs, it is advisable to seek advice from a licensed and trustworthy professional.
Investopoly