Issue 04 | Thursday 25 February 2021 | What will stop this market?
Hi, Andrew Bell here and wrapping up the last report for Summer 2020/21, and what a Summer it has been. Not too hot, negligible humidity and timely rain to keep our dams topped up and for watering our gardens, parks, and nature strips. The city looks sensational.
The most frequent question I am getting now is: “how long can this current real estate market last?”. A good question to which no one has an answer. However, what we do have is a 120 odd year well documented history that gives us some insight into how ‘boom’ markets do eventually come to an end. No question this one is vastly different; driven by that focus on lifestyle change resulting in people changing their residences to suit their new needs, work-from-home arrangements meaning people are not tied to a city, the massive migration north from the southern states, and cheap money. All these factors have resulted in the most incredible real estate market anyone has experienced. The clearest evidence of the strength in the market is at our auctions where we are all astounded to see the prices people are prepared to pay for properties. It also happens to a lesser degree in private treaty sales but most of those are not as publicly known, whilst auctions are highly visible. Depending on location, property type etc. we would estimate property values on the Gold Coast to have jumped between 20 to 30 percent over the past 5 or 6 months.
No doubt the migration from down south has been a significantly added factor here on the Gold Coast, but price growth is occurring right throughout Australia. The Reserve Bank is usually very concerned about sharp rises in prices. They know it leads to personal hardship for many people because of excess borrowings and because it uses up a large amount of household disposal income in mortgage payments that they like to see be redirected into household spending in the broader economy of goods and services etc. Their normal reaction when there is a spike in pricing is to raise interest rates to slow it down. However, the Reserve Bank has made a public statement that interest rates will remain low for 3 years, so it is unlikely that interest rates will prick this price growth bubble.
There is always a risk of an x-factor event. It was the collapse of Lehmann Brothers in 2008 that triggered the Global Financial Crisis. No one saw it coming and it changes the market literally overnight. Some event out of left field is always possible, if not probable.
There are two most likely scenarios that could come into play. The first is that the Reserve Bank may apply some regulation around borrowing. For example: making it mandatory that you must have a 25 or 30 percent cash deposit. That would knock a lot of buyers out of the marketplace, but it most definitely would mean there is less money available to pay higher prices. The second is that there will be, for want of a better description, a buyer revolt. That prices will just get to a point where buyers refuse to pay the prices asked and so the demand for real estate that we see today will drop significantly.
Whatever the scenario, it is not blatantly obvious at present. However, what is absolutely certain is that no market, whether a depressed/down market or, as we have today, a booming market, will continue in the same mode forever. There is a start and a finish of all market cycles and so for both sellers and buyers you have a real gamble. For sellers, do you hang on hoping for more price rises going forward or do you run the risk that the bubble bursts overnight, such as what happened with Lehmann Brothers, and you completely miss the market. When a market turns off you can factor in a good 10 to 15 percent price drop literally overnight. For buyers, do you hold back waiting for the bubble to burst only to find that prices have risen and your ultimate purchase costs you more money in the future.
What I do know is there is not a person on this planet who can tell you exactly what is going to happen. There is not a person who can tell you on what day the market will change. Hindsight is of no benefit to anyone, but foresight is. Choose wisely.
Two quick additional notes. Everyone knows and has heard about the huge success that The Event 2021 produced, most definitely for our sellers and indeed for our buyers. The great news is we have our upcoming Autumn Selection, which is capitalising on today’s market, encapsulating the Easter holiday season, and using the momentum that The Event 2021 provided to an excellent selection of Gold Coast properties for the huge number of buyers who missed out in The Event properties and are registered with us as keenly looking to buy quickly. As a seller, if you are interested in being part of this, please connect with our Autumn Selection hotline on screen now.
The last note is that on Friday, 12 March we have our annual Business Meets Sports luncheon at The Star Casino Gold Coast where we have two outstanding speakers; one from business and one from sport, who will provide some incredible insights into the market. With over 400 already booked in and a limit of 500, we would love to have you there. On screen now are our contact details if you would like to book a table with clients, business colleagues, or friends and be part of the first social event of 2021 here on the Gold Coast. More details about the event will be contained within this eNewsletter.
That is all for this fortnight. Fascinating times that will be talked about for many years to come. I could not be prouder to be an Australian or indeed a Gold Coaster. Well done Australia on how well we are managing through this most unique event in the history of time.
Andrew Bell, OAM
Chief Executive Officer
The Ray White Surfers Paradise Group