The recent 60 Minutes story that “predicted” property price falls of 40 per cent was nothing short of irresponsible. Not only did the story paint a picture of the property market that is just not accurate, it was just bad journalism pure and simple.
Most of the commentary from experts was taken out of context so that it would somehow fit with the sensational angle chosen for the story.The major issue is that this type of false news can also result in changing the behaviour of buyers and sellers, who seem to invest via the media rather than via fundamentals more often than not. So, when the media says the market is booming, buyers jump in but it’s too late because the market is already at its peak and the media was late to the party – again.
Likewise, when a market is going through a decline, we start reading scaremongering headlines about prices dropping by 40 per cent. They always talk about “the market” as a whole, when our nation is made of up multiple city and major regional markets that have never experienced such a marked decline. Of course, there is a difference between major markets and one-sector locations, like mining regions, which do tend to experience greater higher and lows depending on the strength or weakness of that area’s sole industry.
Some mining areas have experienced significant price drops over recent years and some off-the-plan units are not valuing up because of inflated sales prices, oversupply issues, as well as finance problems for local and overseas buyers. However, it’s important to understand that these examples are the exception rather than the rule. Another issue is that some people, including so-called property experts, have only experienced the most recent boom cycle in Sydney and Melbourne, which means they don’t have the know-how to understand historical market movements.
For example, I exited the Sydney market about three and a half years ago, both personally and professionally, because I could see the market was over-heating and the yields were severely constrained. I understood that if the market went pear-shaped, there would be no margin to discount your property to sell to get yourself out of trouble, plus your ability to hold on to the property was eroded because of the lower yields. Buyers who have bought since that time, though, are probably now facing a period of negative equity as the heat comes out of the market.
Some people will sell because they are fearful of prices falling further, which is a mistake, but it’s also an opportunity for smart investors to re-enter the market. People don’t lose money because their property has lost equity. They lose money because they sell at the wrong time – often due to fear.
As long as they can afford to hold on, it doesn’t matter what the market does, because the long-term trend in most metropolitan areas is upwards. They just have to weather the troughs to get to the peaks.
Each peak is usually higher than the previous one but in-between there can be deep gullies as well, depending on the location.
What is old is new again
That is another reason why the recent 60 Minutes story was so wrong.
Not only did it show a drastic misunderstanding of market cycles, you also have to question the credibility of the claims featured in the story.
It’s not the first time these alarmist headlines have been in the media – the same thing happened a decade ago when the GFC hit. Back then, some “experts” claimed similar price drops were imminent and were ultimately proved wrong. In fact, the biggest decline back then was in St Helens Park in New South Wales, where prices dropped by about 45 per cent – but the reason for that was nothing to do market weakness or sentiment. The on-the-ground truth was that a development failed that had inflated prices to start off which meant that the prices “dropped” on paper, but they were never worth that amount from the outset. I can’t understand the motivation for such scare-mongering because it can result in people selling up at the worst possible time and not being able to get back into the market.
What purpose does that possibly serve?