There have been a number of economists and commentators who have predicted that property values will fall anywhere between 10% and 32% this year. It seems like it’s almost become a competition for who can be the most bearish.
However, my view is a lot less bearish. I believe property values won’t fall by more than 10% and it’s quite possible that they might not fall at all.
You could be excused for thinking that I’m an unrealistic property optimist, but I promise that is not the case. Of course, all assets can fall in value and I have
written about the four key drivers to watch out before here.
What is needed for property prices to fall by more than 10%
The predictions of property value declines are usually premised on the assumption that there will be more sellers than buyers. And perhaps some of those sellers are financially distressed, need to sell quickly and as such will drop their price to secure the sale. The occurrence of forced selling tends to weigh on property sentiment and the negative spiral begins.
However, the fact is that people will fight hard to avoid having to sell their home. It is their ‘castle’ and it’s that last thing they want to do. At the moment, banks are allowing borrowers to pause their repayments for up to six months. This avoids the need to sell a property of you are in financial strife. However, these repayment pauses will expire around September. This is also when JobKeeper payments are expected to cease and many people are worried about the impact.
What happens after September?
Firstly, we have to remind ourselves that most people haven’t been materially adversely impacted by the Covid shutdown. Our research (survey size of 451 people from various employment arrangements and ages) suggests that two thirds of people have experienced an income reduction of less than 15% - many haven’t been impacted at all.
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Of the people that have been impacted by Covid-19, almost two thirds of them expect to recover their income back to pre-Covid levels within the next 12 months.
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Some people will need more support
Notably, 8% of respondents said that they were not confident that they could successfully service their loan repayments after September 2020. It is this group of people that may need additional support f
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