The scary new real estate term
IS IT time to buy, hold or sell?
As the housing market continues to soften, interest rates creep up and banks tighten lending standards, it's the million-dollar question many Australians are asking themselves.
This weekend, three experts will share their point of view during a debate at the Sydney Property Buyer Expo at the International Convention Centre in Darling Harbour.
PropertyBuyer.com.au founder Rich Harvey from Channel 9's Buying Blind will argue the "buy" case, Property Power Partners chief executive John Lindeman will advocate "hold", while AMP Capital chief economist Dr Shane Oliver will take a "sell" position.
"My take is we've got a lot more downside to go," Dr Oliver said. "We may go from FOMO about a year ago, fear of missing out, to FONGO, fear of not getting out, which accentuates the downswing.
"Sydney prices have fallen about 5-6 per cent from their high, that's off the back of a 70 per cent rise over the preceding five years, so we've seen a massive run-up in property prices that's left them extremely unaffordable."
Dr Oliver said previous property downturns in 2008 and 2012 were ultimately brought to an end by the Reserve Bank cutting interest rates. But with the official cash rate now at its record low of 1.5 per cent, that is unlikely.
"It's hard to see the RBA jumping in to rescue the market," he said.
Combined with the prospect of a Labor government in 2019 cracking down on property investor tax breaks like negative gearing and capital gains tax, the current situation is a "perfect storm".
"I don't think we'll see a crash, because you would need much higher interest rates or a big rise in unemployment causing people to default on their loans and force sales," he said. "The risks are certainly there but I don't think it will happen."
But if you were a "Martian looking to invest, looking down at Australia, you've seen Sydney come off 5 per cent after a 70 per cent rise, you look across at the other side of the continent and Perth has fallen back to levels last seen in 2006, 2007".
"The old adage, buy low and sell high," he said.
Mr Lindeman argues the long-term prospects for the housing market are still solid, underpinned by massive population growth currently running at its fastest rate since the late Baby Boom years.
"I've studied the performance of the Sydney housing market back to 1901, looking at the best time periods and the worst and what caused them," he said.
"The worst was obviously the Great Depression, that led to about an 18 per cent fall in house prices. The real problem was the banks weren't lending, unemployment was high and wages were falling.
"People couldn't get finance and had to become renters. As property prices fell, rents started to go up. By the end of the Great Depression, rents took up 50 per cent of average household income."
While the current situation was not as bad, Mr Lindeman said one thing that would be similar was rising rents "probably sooner than most people realise". "What's going to happen is what always happens - after we get price rises we get rent rises," he said.
The market would stay "in a sort of holding pattern" until wages and salaries rise sufficiently to generate another round of price rises, or governments introduce new first homebuyer incentives.
"Until these occur, rents will rise, prices will hold and so should property owners and investors," he said.
For Mr Harvey, corrections like the one we're in now either overshoot or undershoot.
"What that does is create buying opportunities," he said. "I don't mean buy in any suburb all the time, I mean be selective. This is a great time to buy well in premium and high-demand suburbs."
Buyers who had previously been "sitting on their hands saying it's too difficult" now have a "little window where they can get in".
Rising markets tend to last two or three years, go down for a year or two, level off then pick up again. "We've had five years (of growth)," Mr Harvey said. "If you're buying for the long term, not just a quick reno and flick, now's the time to buy to set yourself up for success."
With more properties coming on to the market as spring selling season kicks off and clearance rates trend lower, there are "going to be more opportunities to negotiate".
He warned not to believe the doomsayers. "If you try to get out then you're not going to be able to get back in," he said.
"You've got to look at the history of how Sydney has performed over a 10 or 20-year period. You've pretty much seen median house prices double. It might take 12 years or slightly longer this time, but as long as you're holding longer-term (you will be okay).
"I've seen a lot of people who have unfortunately taken the fearmongering advice and gone to Brisbane or Melbourne, then tried to get back in and found they were priced out. I think FONGO is fool's advice."
See Rich, John and Shane in the 'Buy, Sell, Hold?' debate on Sunday, September 9 at the Sydney Property Buyer Expo at the International Convention Centre. For more info visit www.propertybuyerexpo.com.au