FINANCIAL TURMOIL and AUSSIE PROPERTY…
The most common question we are being asked at the moment is - what does this financial crisis mean for the Aussie property markets?
This is our second bear market in stocks in less than 10 years. The 10-year return on the S&P 500 is a negative 4%. Investors in the stock market over the past decade have actually lost ground -- and that's before inflation, which has run at an annual 2.7% in the USA from 1998 through 2007..
So what does all this mean for Australian property?
Firstly, many of the readers would not have been around in business back in 1987.
In financial markets, Black Monday refers to a dreadful day back in 1987.
MONDAY, OCTOBER 19, 1987. When stock markets around the world crashed, shedding a huge value in a very short period. The crash began in HK, spread west through international time zones to Europe, hitting the USA after other markets had already declined by a significant margin. The Down Jones (DJIA) dropped by 22.6%. By the end of October, stock markets in Hong Kong had fallen 45.8%, Australia 41.8%, the UK 6.4%, the United States 22.68%, and Canada 22.5%. In Australia and New Zealand the 1987 crash is also referred to as Black Tuesday because of the timezone difference.)
The Black Monday decline was the largest one day percentage decline in stock market history in stock market history. Other large declines have occurred after periods of market closure, such as on Monday, Sep 17, 2001, the first day that the market was open following the Sept 11 attacks.
It is interesting to note that Australia’s biggest property boom occurred in the late 80’s following the stock market crash of 1987. In fact every time there has been a stock market crash in the last 50 years, Australian residential properties increased in value quite dramatically, with some parts of Sydney going up by 70% in the year following.
What happened then was that everybody who had been burnt or who had ridden the roller coaster threw in the towel, and said they would never buy a stock again.
People moved back into the security of bricks and mortar.
Cash and real estate were the most popular.
There was a flight to safety, and billions moved into real estate.
And that was at a time of 15% mortgage rates.
AND when there was no issue with suppply. And when rental occupancy rates were normal.
AND when the Aussie dollar was around where it is today.
Will history repeat itself? One thing for sure the events of the past month have taught us is that no one knows the future, but the experts tell us that the Australian economy should remain largely insulated from the worst of downturn elsewhere.
Speaking to agents and developers this week in Australia all reported a strong increase in enquiry.
Our strengthening exports will help us, as will the partial recovery after the drought which will further support growth over the next year.
The move to guarantee Bank deposits for three years was a good call, and did much for confidence.
And the RBA is well positioned to lower interest rates even further to help stimulate our economy as required.
Certainly it is a great time to be a landlord if you already own property. Rents are rising, and will continue upwards for some time, there is no sign of occupancy rates easing, and interest rates are falling.
Migration in 2007 was at an all time high, with over 400,000 new migrants arriving. With construction levels for new homes and apartments at record lows, where will all these people live?
EVEN IF MIGRATION FALLS BACK IN 2008, there will still be the flow on effect from the three years previous record migration, PLUS now many returning Aussies from London and New York.
There is still strong demand for properties. Yet there is a severe undersupply of dwellings around Australia. The ANZ Bank predicts that by 2010 we will have an undersupply of 200,000 dwellings.
Australia is now facing its largest population boom for 200 years, and it will coincide and hit in 2009 the greatest housinf shortage seen in 200 years. Currently the cost of construction is too high to allow new development to take place and this has created a marked undersupply of dwellings.
When should you make your move?
Visit this page on our website to register for the November YOUR MORTGAGE Magaine article, that talks about timing.
www.citylifeproperty.com/pp_16.asp
