Residential Property Prognosis

Hi Folks,

Amongst the doom and gloom we are bombarded with by the media and those well intended friends, relatives and colleagues; most of whom have no significant wealth of their own, I thought it would be interesting to share people's views on where we're at and where we're heading with regards residential property.

Certainly, we are in interesting times and whilst not to trivialise the softening of the economy, I still focus on the full half of the glass. I'm not pollyana, however IMHO people who focus too much on the negative and trying to avoid what they don't want are by virtue of their attention on the imbedded command (avoiding loss/poverty/sickness or whatever) likely to pepretuate their unwanted situation.

My take on things moving forward from current day (Feb 2009), is that top shelf properties are likely to come off perhaps 10-15 % depending on suburbs and how exposed the OO's (owner occupiers) still are to equities and business uncertainty.

The middle shelf and this for simplicities sake would include suburbs where most properties are around the median price range (or slightly above) for the capital city in question, may soften slightly (I'll commit to 5 % or so) or track sideways.

I feel the lower end may rally due to affordability issues with FHOG as one component but also due to reducing interest rates, making that sector more affordable to its intended purchasers. I feel investors may also push the bottom end up with falling interest rates.

That lower end may, however fall off as job losses hit OO's who over-committed a couple of years ago and perhaps even locked in at nine's. This is the sector I find the most frustrating to prognosticate on. Perhaps some pull-back of the low shelf rally due to unemployment (in family OO's) or no effect.

The above is not advice, merely my opinion and whilst it is generic and doesn't apply to any market in particular, it is likely to be more relevant to the eastern seaboard. 

I believe that there will be some nice purchasing opportunities for those who are cashed or have enough equity to borrow and fund site acquisition. I'm sitting on my hands with eyes wide open and ready to pounce, especially for infill development land with a rental box on it for now.

Haste makes waste, however only when no DD has been undertaken and people haven't researched properly. The well informed can make fast decisions and take properties off the market.

My only caveat in all of this is that IMHO it is prudent to have very conservative LVR's in this climate. Over-gearing despite the lowering rates may catch some folk out. I've lived and survived the late 80's and early 90's. History repeats. My LVR's are skinny and I will not allow my portfolio LVR to go above 65-70 %, to allow for any potential softening by bank (fire-sale) valuations. The time for max lends will come again and will be in the next bull run of the property cycle, allowing rising capital growth to buffer out LVR's in one's portfolio.

Of course we will all have the benefit of the retrospectoscope    to assist our "told ya so stories" in a couple of years or so.

The market is presenting us with falling interest rates on the one hand enhancing affordability and softening economy and pending rising unemployment on the other hand. Like all things in nature, homeostasis will prevail and the market will find its own equilibrium…….12-18 months.

This too shall pass.

Other's opinions please………