For five years we have been educating you to expect the mid-cycle slowdown in twenty-twenty. The mid-cycle slow down is a short term phase in an averaged eighteen point six-year Global Land Cycle. The mid-cycle slowdown is historically a stock market correction but does not include a land value correction.

To be clear, we did not expect a global pandemic, however, while the stock market correction occurred seemingly caused by the Coronavirus, uncertainty had been building in the market for the past two years particularly on the back of the US-China trade war, Britain leaving the European Union and increasing tensions in the middle east and the South China Sea. The virus was the final straw that broke the back of the share market bull.

Currently, experts are predicting infections to peak somewhere over the next one to four months. Increased social distancing and isolation measures are expected to impact that number too. These measures will, of course, amplify the number of industries, business and people impacted but it will also shorten the time frame.

Service sectors like Hospitality, Tourism, Accommodation and Travel will be bear the brunt of the impact while sales of goods are soaring with panic buying and transitioning to a more isolated lifestyle occurs. The largest industry in both Australia and the states of Victoria and Western Australia is healthcare and it will financially speaking, also be one of the largest beneficiaries.

Shortages in rental accommodation and residential housing construction will only deepen as buying decisions get put on hold and the supply gap deepens. This is good news for homeowners and investors but no comfort if you or your loved ones are one of those impacted.

My heart goes out to you and there is lots of help available. More than we have ever seen but since eighteen hundred, each cycle has been bigger than the last so we shouldn’t be surprised either.

Governments are supporting individuals and businesses whose income are affected with cash payouts. Many banks are offering up to 6 month hardship periods, with no impact on your credit history to those unable to pay. Unsecured, government-backed bank loans are now available to businesses impacted as well.

I have created a video and blog article for anyone experiencing difficulty and what immediate relief there is available. It will take care of a lot of concerns many have. Of course please feel free to reach out to us at any time via your Client Manager or one of our social media channels.

It is also wise to be cautious of the media at this time. Social and traditional. Bad news sells and the echo chambers created by social media only amplify the uncertainty with fear, rumour, armchair experts and any opinion a celebrity, sports star or influencer cares to make.

Real estate transactions will be impacted as the market slows significantly with restrictions on home opens, inspections and auctions. Because the drop off is anticipated to be short term and in both buyers and sellers no significant impact on values is expected. This is also supported by its characteristics.

Property while an asset, is an essential commodity that primarily provides shelter whether to the owner occupier or the tenant. In times of uncertainty, this demand for shelter is largely unaffected. This is where the term “safe as houses” comes from. Further to this because of the “safety” of property as an investment, historically it is normal to see investors move their money out of the stock market during these times of uncertainty and into residential property.

Property is also a low volatility asset due to the time required to complete transactions. Shares can be bought and sold in a second. Property, however, can take several months to prepare, list, sit on the market, negotiate and accept an offer, obtain finance and then settle. Because of the time involved we don’t see panic selling and buying like we have seen in shares and of course in the toilet paper aisle at our local supermarkets.

These characteristics of property are why there is no historical evidence of housing market corrections after these mid-cycle slowdowns.

In fact, times like these are when the biggest players in the market make their move. Just this week, it was reported that one of the wealthiest land owners in Western Australia, Nigel Satterley, just completed the purchase of two hundred million dollars of land in Perth and Melbourne.

We should also consider the fundamentals of the current Australian Housing Market. These fundamentals are very strong and why nearly every capital and most regions have been recording growth in recent times.

Let’s Start with housing supply. For the past two years, the ABS has been reporting significant reductions in the number of dwellings under construction.

This has now flowed through to the rental market with every capital city in Australia undersupplied with rental accommodation.

On the demand side of things, the threat of a Labor government is gone, restrictions on interest-only loans, investor loans and low deposit loans have now been removed, interest rates are at record lows and lower assessment rates allow applicants to borrow more.

Banks were also forced to hold greater reserves to make them more secure just a few years ago hence their liquidity and flexibility in being able to support mortgage holders experiencing difficulty. This corresponds with banks and governments not being overextended in the mid-cycle slowdown.

Further increasing demand, our population is booming as we become one of the fastest-growing nations in the western developed world putting upward pressure on rental and house prices. Household budgets are also doing better as we have seen tax cuts, interest rates cuts and the recently announced government stimulus to put more money in peoples hands.

For investors, these interest rate cuts also mean their investment income increases as funding costs reduce.  As an example, most of our clients who we have conducted Annual Reviews in the past year hold positively geared property and some are taking advantage of 2.88%pa Interest Only Loans. That’s the cheapest investor loan I have ever seen.

It’s these fundamentals that have driven growth in Australian property for the past 12 months. Over the last quarter, seven of eight capital cities recorded growth.

So now we have covered all of the cycles, characteristics and fundamentals, the big question left for people now will be… What should I do now?

Well as buyers and sellers try to figure out what this mid-cycle means for property, there is opportunity for those that know.

For people who have a secure job and are ready to move, I recommend taking full advantage of the current chaos, cheap credit, nervous vendors and beat the rush coming when certainty returns.

The most successful investor in history, Warren Buffet, said when others are greedy, be fearful. And when others are fearful, be greedy. Its what the big players do, its what I am doing and its what you should be doing as well.

Of course, it must be a comprehensive plan, purchasing the right house in the right area with the right strategy including firewalls, buffers and safety nets so ensure you get professional advice before doing anything.

As clients, our team of specialists is available to you including finance brokers, planners, accountants and property management.

For people who have a secure job but don’t have a plan or their finances organised, get in contact with us NOW. It’s time to get an Annual Review complete.

Having your current strategy reviewed will provide you with confidence in your current circumstances and may even give you the pathway for getting into the market as soon as it appropriate for you to do so.

If you do not feel secure in your job or you have more urgent financial needs, feel free to contact us if you need help otherwise the next article is for anyone experiencing difficulty and what immediate relief there is available.

Go straight to Coronavirus Series: Part 3

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