Is a Property Crash Inevitable?
With everything that’s happening in the world right now is an imminent property crash inevitable? Or could the opposite potentially happen?
In this episode I explore this idea in more detail and talk about some of the reasons it may happens as well as some of the reasons it may not.
Is a Property Crash Inevitable? 2:06
What Are The Signs A Property Crash May Occur 4:46
Other Factors To Take Into Account 6:45
7:56 What Could Have a Positive Effect On Property Prices Over The Medium Term?
The U-Shaped Recovery 10:20
Will We See Hyperinflation? 10:55
Is The Property Crash Inevitable In The Short Term? 12:25
What Can You Do To Improve Your Finances During This Time? 13:55
My Strategy To Thrive During This Time 15:06
What To Do If You Want To Take Advantage Of This Time In History 18:23
with everything that’s happening in the world right now a lot of people especially my youtube comments are talking about how there is this inevitable property crash down the line an economic crash because while the government is propping up people now through this health crisis that as time goes on and people don’t have jobs and can’t afford their mortgages we’re going to start to see this major crash and major decline in the australian property market so in this video i want to talk about whether or not the property crash that these people are talking about is inevitable and what are some of the things that suggest that it may happen and what are some things that suggest that the opposite may be true and we may actually be in for a bull run and markets do actually go up and assets to go up in value so we’re going to talk about that and kind of have an honest chat about that in this video hi i’m ryan from onproperty helping you achieve financial freedom and while it’s really interesting to look at these economic cycles and to try and predict the future with our crystal ball as to what’s going to happen through this cycle and through this phase of the cycle what i actually think is more important is actually you and how you’re responding to this and how you’re improving your finances through this so for me personally while i think this is really interesting and while this plays a role in the decisions that i make i actually need to focus on myself and focus on creating good income for myself focus on setting up my financial future focus on creating passive income streams in my life so that when the cycles do come when these market crashes do come when recessions do happen that i’m set up because let’s face it there’s a lot of people losing their jobs at the moment but if you’re one of the people who hasn’t lost their job and you’ve still got a job safe steady income then you’ll actually find through this and through recessions a lot of people are fine you want to not be one of those people that gets hit hard so that’s the most important and we’ll talk more about that towards the end but is a property crash inevitable the short answer is no the longer answer is maybe and the really long answer is yes and i’ll kind of explain what i mean by that and it’s a bit of tongue in cheek there but i’ll explain what i mean by that so first thing is it inevitable so are we set for an imminent property crash in the next couple of months or within the next year is that definitely going to happen now i interviewed steve cain who is an australian economist back in 2016 so a little under four years ago now and he was talking to me then about the australian property bubble and how it was due to crash and how it should drop by about 40 or 50% he was talking about that in 2016 to me i’m pretty sure he was talking about that before the financial crisis and didn’t really expect what the government would do to actually prop up the australian economy and to prop up the australian property market and this is the issue that i have with the people who were in the comments saying this is exactly what’s going to happen and the issue that i have with economists as well who are way smarter than me who know way more than i do about the markets and about the data behind it is that they have these models and they map out these things of what will happen and what should happen based on history and based on the data and then what happens is something happens that they don’t expect or governments do something that they don’t expect or react in a way that wasn’t anticipated and then that starts to throw things out and so when you’re just listening to one economist another thing now the thing with economists is that they’re always so opinionated as well this is exactly what’s going to happen based on the data and for them they they talk opinionated in an opinionated way but i think really they know that they’re adjusting daily but when we listen to them we think oh my gosh they’re so sure that this is exactly how it’s gonna play out all listen to them and do nothing so imagine 10 years ago you’re listening to steve cain you did nothing with your financial future you did nothing to set yourself up because you’re too scared of a market crash well where are you today and are you any better off probably not so is this property crash inevitable let’s talk about what actually may lead to this property crash and why people think it’s inevitable and then let’s talk about some of the reasons why it may not be and why the opposite may actually be true and this is just a discussion that i want to have with you i don’t really have an opinion about what’s going to happen so signs that a property crash maker obviously we’re going through an economic downturn at the moment that’s pretty obvious with four
shutdowns of lots of different businesses with us being stuck inside our house like i am right now and not allowed to go out where you’re not even allowed to sit on the beach and watch your children as they exercise in the water, you have to be in there with them. Otherwise you have to leave. When that’s the situation that we’re in, we’re in an economic downturn, a lot of people have lost their jobs, or lost their income temporarily, or perhaps lowered their income either through taking a reduction in shifts that they’re doing, or through their company going into a hibernating state, and getting the job helper allowance from the government, their incomes may have gone down. So you’re in a situation where people have lost their incomes, lost their jobs, and no longer credit worthy. And so these people who may have been looking or thinking about buying property, now can’t buy property. Now you got people who own property. And as a percentage of those people are in the same situation that have lost their jobs lost their income, or reduce their income, they’re now struggling to pay their mortgage. Now, there’s freezes on mortgages that are available, banks are helping people out the government or helping people out. There’s all that sort of stuff going on for six months, potentially 12 months, maybe it could even go longer up to 18 months, who knows. But you’re seeing this happen. But the argument here is that ultimately down the line, you’ve got these people with no income, who can’t afford to maintain their mortgage, who will be forced to sell their property. And because you’ve got the market, less people actually looking to buy, that’s going to lead to a flood of properties on the market without a flood of buyers. And so you got an oversupply and not enough demand, and then prices plummet for the property market. So that’s kind of the thinking behind what could happen. And obviously, there’s some great thoughts in there, and how that could affect things. But when you’re looking at the property market, when you’re looking at property prices, there’s more than just those simple things that go into play. Obviously, available, availability of credit is a huge thing. In 2017, when Sydney and Melbourne hit that peak, we saw Apple bringing in new lending restrictions, we saw the government put lending restrictions, and purchasing restrictions on oversea buyers, which really dampened the market and the availability of money in the market. And we obviously saw a decline over the next 12 or 18 months in those markets as a result of that. Not necessarily that we saw the economy drop 15% in that time, but Sydney and Melbourne did, because of those lending restrictions. And I’m sure there’s a lot of other forces at play, as well. They’re not just that, then for the middle of 2019, we actually saw Sydney and Melbourne skyrocket again, and go Melbourne even past its 2017 Peak prices. So you know, we saw that cycle there. And so availability of credit and how much credit is available and how expensive that credit is also plays a major role. And so we’re in a situation where interest rates are extremely low, with the government talking about keeping those interest rates low, while the economy is in a bad place and not raising them until we’re really back to stability, you’re looking at extremely low interest rates, the lowest in history, availability of credit, because the government wants to stimulate things that could actually have a positive effect on property prices as well. Even though there’s less overall people in the market, the people that are credit worthy and can borrow, can borrow more, and that could lead to asset prices going up. So we’ve got a few things happening there. What else is the government doing that could potentially inflate these asset prices over the medium term, you’re looking at helicopter money. So the government dropping money into people’s bank accounts, whether it be the $750 drops that they’re doing, or people who are getting the jobseeker payment, plus the Coronavirus bonus. Or you’ve got people who maybe were just working part time who are now getting the job keeper
allowance there could potentially be more than what their income was. And you’re starting to see these people in the lower economic sort of area, people who don’t earn as much money getting this government assistance getting this helicopter money dropped to them. They’re living week to week day to day, they’re likely to go out and spend that money rather than use it to reduce debt. So those people are likely to go out and spend it, which then helps stimulate the economy. We’ve also got the government lowering interest rates, which they’ve done and will continue to do as much as they can. You’ve also got quantitative easing, which is the printing of money, which the Australian Government has come out and said they’re going to do, which the US government has been doing for a very long time. They did a lot of that in the financial crisis. They’re doing that again. Now. You’ve got huge stimulus packages to prop up healthcare to prop up childcare, as well as other industries. You got infrastructure spending, so everything that the government can be doing to prop up and to stimulate the economy. They’ve shown a willingness to do and at the moment it may not be having the hugest effect while we’re not allowed out and while these businesses are in hibernation and forced to be closed but when those businesses reopen again then it will we start to see a recovery of the economy and start to see things working again because of these huge stimulus packages that have seen people through it now most people talk about this not being a v shaped recovery so not a short sharp decline short sharp increase but rather a u shape where we see that decline we then kind of go along at the bottom and slowly start to rise up again so we may be seeing that u shaped curve as opposed to the v shaped curve but the government has shown a willingness to put all this stimulus in to put all this money into the economy into the market to get it flying again and to stop the worst of the worst and a massive price crash now when the government does this what does history tell us what a economist tell us what is the data tell us well it tells us that while it helps to stimulate the economy and it helps to keep things going and stop the crashes it doesn’t necessarily lead to the hyperinflation that a lot of people are really scared about so you know in zimbabwe or venezuela how they had crazy hyperinflation where money was just losing its value and you had million dollar notes and billion dollar notes and trillion dollar notes and every single day the money is basically having in value every single day it may not necessarily lead to that though obviously there’s a chance of anything happening but while it may not lead to inflation of consumer goods what it does tend to do is lead to the inflation or growth of assets and assets and financial assets so things like stocks things like bonds things like property can actually go up in value because of all the stimulus that the government’s putting into the economy and putting into the market so then that can lead to another asset boom which will then ultimately lead to another bust because as we go through these debt cycles and as we go through these booms and busts they tend to repeat themselves and they go in cycles obviously and if you want to learn more about the technical aspects of that ray dalio has a really great video on debt cycles why they occur and so i’ll link up to that down below if you’re interested but
basically is the property crash inevitable in the short term no it’s not inevitable there’s a lot of things that point to yes it could occur there’s a lot of things that the government is doing that point to oh it may not occur and then looking at the virus as well and how that’s progressing we were on an exponential growth current trend in pretty much every country going into the start of march we’re now in the start of april and we’re not really on that exponential upwards trajectory anymore we’re starting to curve out so you see that s curve they call it so in australia we’re not at i guess peak growth rates of daily new cases that started to drop off italy’s data drop off spain germany france even the usa which is obviously the worst hit area at the moment and worse a country is starting to see their daily new cases and the growth rate of that start to drop off so they’re starting to see the growth rate to crime decline they’re potentially indicating that us as the world are starting to get a hold on how to manage this virus and it may not go completely out of control as we originally thought so there’s that indicator to take into account as well so in the short term are we guaranteed to have a property crash definitely not is there potential for it to happen there is potential for it to happen but there’s also potential for not to happen and for the opposite to happen and so this is why i want to come back to you and come back to your circumstances in your situation and your livelihood and your life because ultimately while these things are interesting to look at it’s what happens to you in your life that you care about i’m guessing you probably don’t care about me and my financial situation you care more about yourself whether you can keep a roof over your head and your family’s head whether you can keep food on the table continue to pay for your debts or your home loan or whatever it is your life that you’ve got going on so what’s important through all these times is you and what are you doing to move towards your financial goals because financial freedom it’s not going to happen by itself and it’s not going to happen just sitting here watching videos about whether the market is going to crash this information is really important and it’s important that we stay on top of these sorts of things so we can that can actually influence our investment strategy and the strategies for our property investments our stock investments our business and crypto and cash and whatever it is we’re investing in that’s really important but you need a strategy that can work through all of these times to see you have success down the road so for me personally my strategy is first of all increase my productivity and increase my income so through this time when i’m stuck at home i’m now working more than ever i’m putting out more content than i ever have before both on on property as well as excuse me i have a few different websites out there i’m getting up early in the morning 530 in the morning to write articles and to build up my business so i’m working harder than i ever have before to actually grow my income through this time so for me personally i’m focusing on growing my income paying down my debts as well so that improves my cash flow when i don’t have to pay for those debts anymore or i’m not paying as much interest on those debts anymore that’s really important grow my income decreased my bad debts and then when it comes to investing it’s a really smart for me it’s a really smart risk mitigating approach to investing and it’s an approach that i believe will work over the long term so i’m not trying to play this cycle in the short term and trying to make quick bucks in the next six months or 12 months so i can quit my job and live on a beach somewhere like the beach i can walk to the beach from here so kind of live right near the beach anyway
but it’s not so i can just make quick money but it’s okay i’m going to earn income through a business that i love and that i’m passionate about grow that income and then invest in long term assets for me that i believe will perform over the long term so for me that’s likely going to be buying houses in brisbane on good blocks of land where i can add granny flats onto those properties brisbane didn’t go through the same upward trend that sydney and melbourne went through it didn’t go through the same decline either went through a smaller decline but also didn’t have the crazy run out that sydney and brisbane had in the back end of 2019 so for me brisbane looks a lot better than sydney and melbourne analysts are starting to say that perth actually looks like it may have hit his its bottom as well and perth as a city is not that much more than brisbane and so perth could be a market that i will look at as well but probably i’ll be looking at the brisbane market houses building granny flats i’m in a positive cash flow position and that extra cash that’s coming in from those properties i’ll be putting probably into an offset account building up a buffer fund or paying off debt on those properties so that when we do reach the next market peak and when we do have the next property crash or the next recession or the next market crash that i’ve got that buffer in place i’ve got the cash flow in place that i can weather that storm and see myself through it and actually fully take advantage of it i was not prepared for this cycle to fully take advantage of low asset prices right now because i’m still getting myself out of a bad situation but when the next recession comes in when the next property crash comes which is inevitable and so that’s where it’s kind of like no it’s not inevitable short term maybe it could happen but long term will we see another property crash at some point that is pretty much guaranteed because of the way that debt cycles work and the way the economy works so when the next one comes then i’ll be in a position to do that so if you’re sitting there and you’re thinking okay yep economic cycles property cycles are interesting but what’s more important is me and i’m actually in a stable financial position right now with good amounts of cash and i’m ready to take advantage of this market and ready to see what i can achieve and how i can set myself up so when the next recession hits that i’m prepared for that but if you need some help kind of getting clarity on that and getting clarity on how you can move through these uncertain times then head over to onproperty.com.au and you can learn more about the free strategy sessions over there where you can get on the phone to someone you can talk about where you’re at where you want to be what your goals are what’s holding you back from getting there and start to get a plan in place about how you can strategically move towards your property investment goals so again go to onproperty com.au to learn more about that over there get clear on your goals get clear on your action steps and for some of you there might be stay out of the market right now because you’re not in a stable position you’re not quite ready other people might be now is an opportune time for you to take advantage of the market and how can we minimize your risk through that and actually set you up for long term success because for me long term financial freedom is what’s most important not the short term capital gains or capital declines is that long term success that long term cashflow long term financial freedom jagan onproperty com.au to check that out if you’re interested in that or go ahead and check out the video that i did ben everingham on how to set yourself up for financial freedom in as little as two years so link up to those video that video go ahead and check it out otherwise until next time stay positive