Real Estate and the Recession
The Bubble Is About To Burst
Baby Boomers To Be Hit The Hardest In Plummeting Housing Market
The housing market has been booming in the last 3 years. Now, experts say it might be time to start worrying. They predict that the housing market will soon experience a sharp decline. If you want to sell your house before the market crashes, you need to act now.
On Tuesday (26/7/2022), the Reserve Bank of Australia increased its benchmark cash rate by 50 basis points to 1.35 percent, but economists predict that this could go as high as 2.85 percent in the near future.
Rising interest rates will put a huge dent in consumer confidence and fuel a recession in Australia, according to analysts and economists.
Forecasts for price falls of up to 20% will offset any gains made in the last 2 years when adjusted for inflation.
This will cause not only house prices to drop, but the number of motivated buyers to fall along with it.
Major cities will be the hardest hit, while smaller cities and regional centres shouldn’t suffer as badly.
It’s a home buyer’s worst nightmare – rising interest rates AND rising inflation. Any dream they once had of owning their very own home seems to be another 5 years away.
We have seen record prices in the housing market in the last 2 years, largely thanks to a pandemic that has meant more people are prioritising where and how they live.
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The Bubble Is Bigger Than It Has Ever Been, And Now It Is Set To Burst.
According to analysts and economists, Australian homebuyers are the first to fall victim to the rising inflation, and the knock-on effect could send the housing market into a nose dive.
While home buyers will be unable to borrow as much as they could previously due to the higher rates we are also likely to see more home foreclosures due to the inability of homeowners to pay the mortgage.
This will then see the supply of homes increase at low prices. This is great for those with cash, but there is one group that it will hit the hardest.
Baby Boomers To Be Hit The Hardest In Plummeting Housing Market…
While many retirees own their homes right now, most of them are also reliant on the success of their superannuation to maintain their lifestyle.
With stock markets set to take a huge hit, and the cost of living set to rise the old joke about “spending the kids’ inheritance” may not be so funny anymore. Instead of spending it on a caravan, you might be spending it on the groceries.
While many of the younger people in this generation may be able to ride out this dip and see it get back to the same level in 5 years, those who will need to make a major life change within this window will be among the worst affected.
As people age, their priorities change. We see people downsize as they approach old age. The last two years were the best possible time to do this. We can’t say the same about the next 5.
With a drop in the housing market and a rise in the cost of living set to put the pinch on most Australians those that are no longer in the workforce may be getting left behind.
The National Australia Bank has projected a drop of 18% in housing prices – though unlike some other countries we do not suffer from oversupply. This means it is unlikely we’ll have results like the USA in 2008.
AMP Australia Senior Economist, Diana Mousina, told CNBC’s “Street Signs” on Tuesday that she expects a “big hit” to household wealth from a fall in house prices between 10% and 20%.
“For many decades in Australia, we’ve seen some small corrections, but that [15%-20%] will be quite a decent fall,” she said.
“We have obviously had a very big run-up in home prices over the past two-and-a-half years of the pandemic because we’ve had such a strong housing market, lots of demand as well for the regions in Australia.”
“It will just be a bit of a hit to households … because of the wealth effect that comes through when home prices decline.”
This Will Put Many Retirees At A Crossroads
With the value of housing set to fall, and many overleveraged homeowners facing foreclosure a choice faces those looking to sell within the next five years.
Sell now and downsize to free up cash for the rise in living expenses OR wait and hope you aren’t forced into selling at the bottom of the market.
Unfortunately, there is no crystal ball for health, happiness, or your financial wellbeing. Only you know your true state of affairs when it comes to the next five years – maybe you can afford to wait for the market to recover.
If you find yourself feeling a little more uncertain as to the future and are looking to downsize then now might just be the last good (profitable) opportunity to do it.
The Bear Is On The Window Ledge
There is an old saying in the stock trading circles – the bull climbs up the stairs, while the bear jumps out the window. This of course refers to climbing bull markets moving slowly, and falling bear markets plummeting quickly. It can take a long time for things to recover.
Some People Are Set To Get Very Very Rich
Real Estate is a zero-sum game – someone has to lose for someone else to win. There will be those who have kept their “powder dry” when the market hits the bottom. These are the people that will swoop down and pick up property at its lowest.
These are likely to be cash buyers that aren’t reliant on the bank to fund these land grabs. Those who aren’t overleveraged will be able to take advantage of those desperate to sell. Unfortunately, it’s the harsh reality of real estate. Don’t fall victim to bad timing.
The Silver Lining
We are only just over the peak of our record sales figures in the housing industry – we have noticed a slowing of the market already, but panic hasn’t set in…yet.
If you’re someone who is able to ride out the next five to ten years then you have no need to worry. If you’re someone who has been thinking about making a move sooner will likely be better than later.
Either way it’s going to be a wild ride.
If you’re thinking about selling your home now is a great time to pull the trigger and catch the tail end of this housing bubble. Wait too long and you could be selling in a depressed market. What you do know will shape your next ten years. Do you know what your house is worth right now? – Give me a call today to find out.
Disclaimer – All of the information expressed above is a professional interpretation of market trends across Australia in the last 50 years. It is intended for educational purposes only. It is my firm belief that as a real estate agent it is my duty to serve my local community with honesty and integrity. I am not a financial advisor/planner.
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