Is Now A Good Time To Invest In Property?

The market is forever changing and things are heating up right now in many markets across Australia. In this episode we want to look at whether or not 2021 is a good time to buy and compare it to 2020 as well as previous years.

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0:00 – Introduction
0:50 – Sentiment is super bullish
2:04 – Things don’t always play out how you think they logically should
5:05 – Where are we in 2021
9:05 – Pressure on housing stock and vacancy rates
10:20 – Australia is not one market
13:10 – Things to look at moving forward from here
14:30 – Erring on the side of caution in this market
17:12 – Know your strategy before investing

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Transcription

Ryan 0:00
The market is forever changing. And we always like to do updates about whether or not now is a good time to buy and looking towards the beginning of 2021. Looking into 2021, we’ve come through an interesting year in 2020, we wanted to ask is 2021 a good time to buy and what sort of things are happening in the market at the moment, and then maybe some comparisons last year, or even comparison to a couple of years ago, and see where we’re at, hey, I’m Ryan from OnProperty, helping you achieve financial freedom. I’m joined by Ben Everingham from Pumped on Property to yet give you guys an update. And to talk about this just to see where the sentiments are, how things are progressing and how they might go throughout the year.

Ben 0:44
You know, I geek out on anything that’s like analytical data oriented, it’s all about me and what I’m noticing and feeling I’m liking and I’ve never I’ve never seen it this bullish at the moment like I’ve never seen it this positive across the board.

Ryan 0:58
Yeah. And I think that’s something that is just so drastically different from what we’ve been dealing with for the last almost three years now. You know, Sydney went through its decline, Sydney and Melbourne in 2017 2018. And so, that kind of affected things and then obviously Coronavirus last year, it’s just been there’s been great opportunities out there. And some markets have been moving but sentiment as a whole hasn’t been super bullish and super positive. And now it’s just dude, every man and his dog is talking about a property some people I talked to at school, they don’t even know I’m a property vlogger YouTuber, they come up they’re talking to me about the Brisbane and I’m in Sydney like event talking about Brisbane or the Sunshine Coast or

Ben 1:40
it’s pretty wild like Westpac does an epic little report called the Australian sentiment report and it is now in as of January or February this year, the highest it’s been in the last seven years and December was the highest sentiments been in 10 years since the GFC. Now that is a huge precursor for like what’s coming in a positive way

Ryan 2:02
and I think something I’ve had to let go of so over the last few years and dealing with renew the recession was coming or something was gonna happen and then trying to work out logically Okay, how are things going to play out and then being at this point now looking back and realizing that things don’t always play out how you think they logically should? There’s so many factors at play like last year Coronavirus, borders closed down international borders closed down job Kiva people losing their jobs it’s like okay, the market should tank from a logical perspective people are earning less money you know what people are losing their jobs This is crazy. The market should tank but no the market dinner and and what people ended up earning more money saving more money because of job keeper and all of that sort of stuff. And then the market has actually grown as a result. So sometimes we think okay, we’ve been through 2020 and Coronavirus that should hit the market hard. Not necessarily and I think you know,

Ben 3:01
the very first thing I did last March man when shit started to get really bad was look at history, which is what I always do. And so Fred Harrison went and looked at the mid cycle slowdown, which is the event that we’ve just gone through that we’ve been talking about on camera for what like three, four years. Yeah, yeah. And when I went back and looked at the three mid cycle slowdowns before the Coronavirus one, what I found is that the average house price during these events, which are once every 18 to 20 year events, is a decline of only 10% globally in houses and an average of about 35 to 40% in stocks. And so I went like that knowledge is really powerful. Now each mid cycle slowdown comes from a trigger event. The sun was Coronavirus, last time it was 911 and the.com. Boom. The time before that was the recession we had to have apparently because interest rates were at 18%. The time before that was the Cuban Missile Crisis. So there’s always a run up. And then a period of mass freaking out globally that smashes the market. So we’re already going to go that way anyway. And so from about April last year, I was already realigned with I understand how bad it’s got historically. I still believe that this time it was worse, like everyone does. Oh,

Ryan 4:16
wait, we both did. We were both fearful that this time it wouldn’t be just a mid cycle slowdown. It might have been a bigger correction. But then the government stepped in. And as soon as that happened, I think we both knew at that point and we’re listening to people like Ray Dalio and all these higher level investors that are way better than us, listening to them talk about Okay, what is this government intervention mean? How’s that going to affect the markets, and we understood quite early on that, okay. This isn’t going to be as bad as we thought the buying opportunity is now while everyone’s scared and I know like you and Simon and stuff are buying last year. We know that this is an opportunity and could be a potential run out now into the future until we have the next crash where whenever the That will be

Ben 5:00
completely and you know, that’s an interesting thing. So as we understand that bigger picture history stuff, then we go, where are we in 2021. And there’s a couple of indicators that I follow that have like, a very, very strong correlation to short term price growth. Now, one of them is the number of new mortgages being written in Australia right now.

Ryan 5:20
That’s okay. I think I’ve done a video on that the correlation between new mortgage and price growth, I’ll link up to it down below. But it is insane how close that correlation is. You can never say it’s causation. But this one’s This one’s crazy. Yeah,

Ben 5:35
you know, so when I think it’s called logic went back to 2003. So it’s got about 17 years of data. And what happens is, as the number of new mortgages rise, generally, we see capital gains across Australia, when the number of new loans come down, we genuinely see price declines. And it is just gone from like a bottom here to like, right up here, particularly in Brisbane and Perth. I think the number of new loans written this year are up 35% on last year, and 40 odd percent in Perth, and

Ryan 6:04
you look at what’s happening, because obviously house prices, it’s not just tied to people’s income. With rental markets, it’s often more tied to the incomes of the areas because people are paying directly out of their pocket out of their weekly or monthly income to pay the rent. Whereas house prices, often tied to mortgage repayments and how much that’s going to be so when interest rates are extremely high, obviously, you have to pay more to own a property. And when interest rates are extremely low, and now we’re at record lows, then people can afford people looking at not okay. 400,000 versus 500,000. They’re actually looking at, okay, how much is my mortgage going to be each week? It’s one of the dangerous things in a market like this with such low interest rates, people are saying my mortgage each week’s 400 and you like Well, what’s it going to be when it goes back up to seven? Hey, at seven ply, and now no one really thinks about that at this point in time. So you’ve got that you’ve got the low interest rates, obviously putting pressure on the market, but I guess what was holding things back was there was still a lot of lending restrictions in place. So even though interest rates were low, people were finding it difficult to get loans, we had the Royal banking commission, which, you know, put a lot of scrutiny on the banks, and then the banks were then putting more scrutiny onto people. And they basically said, because of, you know, Corona, we’re going to like forget a lot of that stuff. And you know,

Ben 7:25
just come out and said that their intention is to rollback almost all of that stuff, plus a lot of the stuff they put in place to protect Australians from the banking system in 2011, after the GFC, which Trump went and immediately removed as soon as he got into office in America back or not immediately. But back in 2018, I think it was and Australian starting to follow suit, which again, feels crazy. But if you understand your long term cycles, that’s what the governments have done every single time we get to this point for the last 100 years. Well, that’s

Ryan 7:56
it a lot of this kind of sounds crazy to us as regular people, you know, the government’s printing money, or they’re making access to cash really easy or bank loans really easy. And that’s like, that sounds crazy. How long can this go on? etc. But I guess, stepping aside from the morals of it and things like that, you got to say, Okay, what pressure is this putting on the market? And how is that going to affect the market and affect sentiment in the short term, we, we never know exactly what’s going to happen either short term or long term. We don’t know, you know, what policies the government’s going to put in place or how much money exactly they’re going to print or what they’re going to do to stimulate the economy. We never know that. But what we can start to say things like, easy credit, low interest rates, putting, like increasing the amount of mortgages that people are getting, and then we know that that then puts pressure on the market, which makes it a hotter market and then even being on the ground in Sunshine Coast, in Brisbane in Sydney in Melbourne and feeling the heat in the market as well compared to the midst of Coronavirus or compared to 2018 2019. It’s like apples and oranges

Ben 9:03
right now, like some of the other cool stuff that I’m noticing across Australia is outside of Sydney and Melbourne a massive massive reduction in vacancy rates. Now, something’s happened in the last five years that people aren’t understanding properly yet, but that is it wasn’t just hard for people like me and you to borrow money. It was very, very difficult for developers to so we’ve let you know almost 300,000 people a year into the country for the last five years, but we haven’t produced housing stock outside of inner city apartments in Sydney and Melbourne to compensate for that. And so almost every single capital city outside of Sydney and Melbourne is just at 1% or one and a half percent vacancy rates now that puts massive, massive, massive pressure on renters and with interest rates being so low some of these renters a lot of my friends are like, fuck it. I’m just gonna buy it now because it’s way cheaper for me to own than rent and then they stimulate first time buyers like a friend and see He just bought a unit in hate code for 450 K. And he’s in a position where he’s, you know, a solicitor, he’s earning good money, he was living at home with his mom’s saving. They’ve said, Hey, put a 5% down, and we’ll government back the rest. And he’s like, boom, straight in, you know what I mean? This guy wasn’t thinking about buying a property before this year until that incentive came out.

Ryan 10:19
Yeah. So there’s a lot kind of happening in the market. And I think this is a good point to say that Australia is not one market as a whole. So when you’re saying is 2021, a good time to invest? You can’t say is it a good time to invest in Australia, because every single city is going to be different. And then every single suburb within the city is going to be different streets are going to be different properties are going to be different. And so you need to do your research and look at all that stuff, which we have so many videos on this channel. And on Ben’s channel, talking about how do we do market research? How do we research markets and suburbs and things like that, but all markets are going to be different and you’d be looking at Sydney and Melbourne, for example, they had the big run up into 2017. They then had a decline into 2019. Another quick run up in six months going into when Coronavirus happened. And so you’ve seen big growth in those areas. Compare that to Brisbane, which has been pretty like flatline for going on 1013 years now. And you look at Okay, what are the risk factors between both Sydney and Melbourne could both be growth markets, Brisbane could be a growth market. But Sydney and Melbourne are starting from a period where, you know, they’ve grown quite a lot over the last eight to 10 years. Whereas Brisbane is in a point where it hasn’t really grown in the last 10 years. And it’s like okay, which has more room for growth. And for me, you know, I think of Brisbane or you look at the Perth market. And Perth had a massive run up. I can’t remember when that peaks, but then it had a huge decline for years and years and years going down 20% 25% 30% in some area. And now it feels like okay, maybe Perth hit its bottom, how much upside potential is there in that area? And look, I haven’t done the full research into that market. But

Ben 12:07
it was pretty cool logic sort of saying that perf is cheaper to buy now than it was 14 to 15 years ago. Like you’ve got average incomes over there at 130 grand a year. And an average house price of 400 k it’s like, what happened during the virus that nobody in the media talked about is the Australian Government through the businesses over there moved about 25,000 people across which took it from a vacancy rate at 3% at the start of 2020 to under 1% now so all of a sudden there’s been this fire lifted under the Perth market. The same thing is happening in Brisbane over 1000 people a week moving into Brisbane right now.

Ryan 12:42
Well that’s it. It’s been crazy because you know, people are trying to escape Melbourne and lockdowns to move up here or Sydney and

Ben 12:50
what you’ve been up with Cashman and paint jobs, like they’re moving up with 200 300 grand a year combined income and work from home solutions and

Ryan 12:57
stuff like that, which allows them to relocate to an area that’s cheaper and the lifestyle is better, the weather’s better.

Ben 13:04
Yeah. It’s really exciting. Like one of the things that you need to keep an eye on moving forward from here is, you know, the continuation of easy credit. So at the moment, it’s cheap credit. But the next thing that comes through in the cycle is easy credit, it’s going to be more and more relaxed to like, let’s get the economy back. And it’s like, okay, there’ll be two, three years of really easy money. The other big thing to watch out for is infrastructure. So Commonwealth Bank just put out an article which was insane. And they reckon the government’s investing on top of what that normally put in about an extra 2% of their GDP into infrastructure in the next two years, which, in Commonwealth bank’s words will create a infrastructure boom, the likes we haven’t seen for 100 years in Australia, like it is insane the amount of jobs that will be created. And if you look at their modeling, by the end of 2022, we’ll be back below 5% unemployment with a lot of people employed in good jobs. You know, what they haven’t said is we’ve paid off over $300 million worth of extra repayments on our home loans this year, saved an extra 120 $5 billion in household savings like we pulled $35 billion out of super, the banks have printed almost $200 billion now like all of this money has to eventually come into house prices in the stock market. Yeah, it’s so exciting but as always like now that people are going to be very greedy. We need to start erring on the side of caution and making sure you’re not just rushing in I’ve seen suburbs go up by 400 k in the last three months in the Sunshine Coast. That’s like that is just insane.

Ryan 14:42
And something that came up in a previous video is even the Sunshine Coast in itself, which to a lot of people feels really hot right now. So hot right

Unknown Speaker 14:49
now. So hot right now.

Ryan 14:52
Even though it feels really hot. There’s definitely particular suburbs that have outperformed other suburbs and some of them have just gone off the chain. And just grown exponentially and just crazy frenzy, while other suburbs haven’t. And so, at a time when the you are getting easier credit where you are getting cheaper credit, where the market is feeling hot when people are more optimistic about the future, yes, there’s opportunities. But there can also be higher risks in this sort of market because people are starting to get silly with how much they’re spending and how much over the market value they’ll spend to secure a property because the market is so hot. So it’s really a time we believe, just like in a market down cycle where we think doing your due diligence doing your research is so important. So you’re not buying in an area with red flags, you’re minimizing your risk in that down cycle. samen and upcycle is just there’s, there’s some pretty high risk things out there as well. But if you do your research and find the good areas that don’t have those red flags that maybe haven’t just blown up already, and you missed the boat, but find the ones that look good, that have good fundamentals, and you see can see growing over the long term, you just got to be careful in this market. Because if you get caught up in the hype, and you overpay for something, and then market, you know correct. So things happen in your life, you can get yourself in a pretty bad position completely. And

Ben 16:19
that’s why, you know, for example, this suburb, Regina, on the sunny coast, which is on the south side, you know, mom’s just sold this house for over a million bucks, she paid 500 grand three years ago, but up the road at Kara money. There’s the same opportunity for 750 k right now. And it’s like the same beach, it’s just a few K’s down the road. You know, same in Brisbane, like there’s some suburbs in Brisbane that have grown by 100% in the last 10 years right in the city. And then just 15 K’s down the road, you can buy a house for 250 to 350 K and it’s like, you know, just because one place has risen dramatically doesn’t mean there’s not opportunities and you know, I don’t know Sydney and Melbourne as well anymore, but I’m assuming there’s incredibly high quality options around those markets as well as Perth, Adelaide, Darwin tazzy steel as well.

Ryan 17:07
Yeah, it really comes down to doing your research, but also knowing your strategy. Okay, what am I long term goals? What am I trying to achieve through investing in property? And this is what it comes up so often with people that we talked to who were talking about property, especially now that the markets hot and everyone’s talking about property? Yeah, it’s like, Okay, well, what what’s your angle? What’s your strategy? What are you trying to achieve? I am yet to get an answer to that

Unknown Speaker 17:32
question. You know,

Ben 17:34
many people I speak to a man can’t answer it, and that’s fine. But figure out a way to answer it. Like my end goal is I want six figures of passive income for life, from the rental return on my properties. And that’s mean as well. That’s how I’m trying to do these things. So it’s like, I’m not chasing the shiny light, I’m chasing the income plus the long term growth strategy.

Ryan 17:55
Well, that’s it for me as well. So my goal is the same like six figures, from my properties, the strategy I’m gonna get, there’s the two properties to financial freedom strategy. So purchasing a property building a granny flat or maybe doing new builds and doing dual occupancy. And ideally, you know, working out the numbers, I’m looking at four properties for granny flats, or eight incomes all up. But then also, having that strategy allows me to take a step back from the market and say, Okay, here’s the properties that I need to buy in order to achieve my goal. Okay, let’s say I want to get into Brisbane at the end of the year, at that point in time, we can chat about where’s the market out? Where’s the opportunity, but let’s say Brisbane, just like completely runs away, and fully priced out of Brisbane can’t do that anymore. It’s like, Okay, well, I still know what my goal is. And my end strategy, let me find another area where that could potentially work like and you need to look at council zoning and what you can achieve and what you can do, or maybe I need to adjust that, you know, Julian come to different areas. But when you have that strategy, you can adjust to the market. Whereas if you’re like, Okay, no, I want to buy in this suburb in Brisbane, and it runs away you got that fear of missing out. So you buy it too high, versus saying no, this is what I want to achieve long term. I need to find the suburb that serves my goal and serves my strategy versus just trying to shove a strategy into the property that you’re looking at.

Ben 19:15
I really love that man like you know, part of this current market is being flexible so like at the start of the year brought on two incredibly intelligent one one guy and really successful great farm in Adelaide, another guy owns the most well known circus in Australia, and he’s just an absolute legend and a bass and I talked about this strategy for them, which was a high quality Bluetooth asset in a suburb called Wavell heights in Brisbane. And I said, Let’s go find a renovator for under 800 K. Six weeks down the line Hey guys, I’m really sorry but Wavell heights has gone up by 200 k in the last month. We’re no longer looking at this suburb but here’s four or five that look exactly the same, but just haven’t gone through that yet. And it’s like just being named And being open to adjusting and not to fix, they’re not going well, I’ve invested six months in looking at this area. Now I’ve missed the boat, I’m just going to speculate and just hope that it all works.

Ryan 20:10
Rather than putting one meal or 1.1 meal into buying into that suburb that’s already grown, take a step back and say, Okay, what, what is our end goal here? What are we trying to achieve? What’s our budget as well and say, okay, what’s our purpose fit that

Ben 20:24
650? Man, maybe that represents even more value? Yeah,

Ryan 20:27
exactly. And so being flexible with that, especially in this market, where we do foresee some suburbs moving really quickly, and things changing really quickly over time, you know, the video we make today about what’s the best supper might be different in three months time, because that’s blown up and being completely overpriced, and some other suburbs, the next hot thing. So you’ve got to be really flexible, really nimble, at this point in time and be clear on your strategy. And if you do need some help, understanding that strategy, because we know it can be difficult, then Ben and the team over at Pumped on Property do offer free strategy session so you can get on the phone to them talk about where you’re at where you want to be, what strategy could align with that. And then also talk about, you know, where’s the market at right now, because it’s going to be changing so quickly. So those spots are extremely limited. But that’s a complimentary session, go to onproperty com.au, forward slash strategy, you can learn more about that over there, you can book in a time that suits you get on the phone to one of the team and get clear on that, you can then take that information, run with it yourself, and go and invest yourself. Or if you feel like it’s a good fit, and you want some help, you can hire the team at Pumped on Property to help you do that sort of thing. So again, that’s onproperty. com. au forward slash strategy to book one of those if you’re interested, do you think there’s anything that we will need to cover? You know,

Ben 21:45
I think one thing I will say is like, it’s a there’s an expectation in the market right now that people are going to make short term money like commbank, saying nine and a half percent this year and houses in Brisbane, around about the same in Perth, a little bit less in other markets in Australia, but I couldn’t see a single one that wasn’t going to be seven to 10% this year. And when that happens Australia wide and everybody’s lifts, boats get lifted at the same time. That’s a really, really powerful thing. And there’s this concept in economics, the wealth effect, and that is going to spray through to discretionary spending on all types of things in the future. So just keep an eye on it. It’s a really exciting time to be an investor. But it’s also as important as ever to just be strategic with what you do and find the right strategy for yourself and just do your research, do the research. And

Ryan 22:35
yeah, so we hope that this has given you some insight into what we’re thinking about 2021 will be constantly adjusting this opinion based on what happens in the market. So we’re not saying that this is a crystal ball exactly what’s gonna happen we don’t know that. But this is kind of the sentiment This is kind of the some of the things we’re thinking about. And it’s one of the things to pull into your arsenal along with information and data from other points as well to make your decisions as best as possible. So we wish you the absolute best out there. Until next time, stay positive