Bears and Bulls

The Bear and Bull market phrase has been so universally used over the past two years, and like no other time in our residential property market, we have had rapidly alternating bull and bear commentators forecasting the Australian property outlook.

A Bear Market refers to a declining market. A Bull Market refers to an increasing market.

One of our more outspoken, but insightful economists noted that so many economists, banks and media reports got it wrong when they forecast a dire outlook for Australian property during both the 2018 downturn in our two largest capital cities, and later nationally when COVID-19 struck our shores this year.

Christopher Joye wrote jokingly of the incredible bear to bull transformation recently, headlining his article, “Housing bears now endangered species” and he is correct in noting the sheepish retraction some of our lenders have more recently made since their dramatic downgrade of their dire predictions.

The questions remain, however;

• Are we out of the woods as far as COVID-19 initiated downturns are concerned?
• Is our housing market as robust as it seems?
• Will the government stimulus finale impact our markets in March next year?
• Will other economic fiscal efforts drive increased buyer activity, and hence house prices? and
• What will sentiment do?

When I look back at the beariest sentiment, it was back in March and April. I recall writing this Sunday blog and I noted the large number of clients who, at the time decided to place their searches on hold to ‘see what would happen.’ No doubt, buyers tend to avoid danger when uncertainty and fear arise. We were watching on with horror as Italy and Spain had climbing case numbers and ICU facilities were at capacity.

Would it happen here?

Yet a handful of our clients remained undeterred and in fact, two saw the fearful period as an opportunity. This chart was one I created when I overlaid the Australian COVID-19 case number curve with my clients’ acquisitions. The red houses represent a ~10% discount against appraised value, the orange houses a ~5%, and the green houses essentially a ‘back to appraised value’ sales result.

The first hint of price discounting was at auction on the day after the World Health Organisation’s announcement that we had a global pandemic. My anticipated auction competition had quickly reduced overnight and even our own clients had downgraded their maximum budget.

At that point, I knew we were in for a market wobble.

Little did I know that the wobble would be so short-lived. We literally had less than three weeks of bargain buying activity. The stock shortage broadly underpinned falling house prices through our miserable winter and despite economic hardship and the threat of Jobkeeper’s finalisation, our market surprised many in October when our hard lockdown ended and buyers leaped out in force.

Even with difficult one-on-one, 15 minute inspections and online auction portals, buyer sentiment felt strong from that first week out.

Bear Market reporting started to diminish in the media and Bull Market stories started to appear. Our banks began downgrading their estimates for negative price growth and it seemed that FOMO buyer activity was brewing once more.

Our enquiry level peaked in October to record highs, a clear reaction to the limited stock options and the challenges buyers were facing when attempting to secure their home, in combination with a sharp turnaround in consumer sentiment.

A sharp contrast to March/April when agents were calling us, asking if we had any buyers for their vendors’ properties and imploring us to inspect them.

What is incredible however is the tight bull-bear-bull-bear-bull timeline we have all experienced. Never in my career have I seen such alternating change in such a short period.

What we need to ask ourselves now is;

What will 2021 bring?

Our Federal Government responded quickly to the pandemic earlier in the year. Since then, construction activity has increased, funding for infrastructure has occurred, sentiment has been uplifted and now, talk of the easing of our Responsible Lending Guidelines is creating confidence that people will spend again.

At present, we have our lowest interest rates on record. Money has never been this cheap in our liftimes.

Yet getting our hands on it remains a challenge.

Lender scrutiny is tough, credit is highly controlled and borrowers are still experiencing difficulty obtaining a loan.

If and when the guidelines change and the availability of credit increases, we can anticipate that many more buyers will source this cheap money.

2020’s bulls are Owner-Occupiers, but I believe 2021’s bulls will be much more represented by our returning investors.