Ever since the 1990s, I've always been of the view that property should be seen as a 25 year investment and that over that timeline prices will likely increase in certain locations including Sydney (and certain areas in and around London) where the population is booming and there is little land available for release. Averarge investors are notoriously desperately poor at timing markets so I place emphasis on long-term outcomes.
My own approach has been to spread risk widely by holding hundreds of (predominantly industrial and financial) stocks and investing in different property markets, with a bias towards 'growth' asset classes.
As disclosed on my blog, I've owned a number of diversified (industrials-focussed) Australian LICs, the major Aussie bank stocks and a couple of major resources companies, a couple of UK index funds, a number of inner-Sydney residential properties as well as residential properties located close to London, and a healthy cash buffer in a cash management account.
David Collyer took exactly the opposite view to me, specifically advising potential homebuyers and renters to steer clear of the property market at all costs for the past few years, as once again stressed in this February 2012 article which you can read here:
We renew and repeat our warning to potential home buyers to stay out of the property market. Falling prices erase equity while buyers’ mortgage liabilities remain payable in full.
Since the property market troughs in mid-2012, unfortunately, prices have not fallen by 20%, or even 15%.
Futures markets now see interest rates remaining at 2.50% or below right through until early 2015. With auction clearance rates repeatedly topping 80%, I expect to see prices increasing even further in Sydney, though I'm far less certain about the prospects for some other cities.
What if prices continue to increase as has been predicted by the mainstream forecasters including BIS Shrapnel, Australian Property Monitors, RP Data, SQM Research, McGrath, and ANZ Bank, to name but a few?
HSBC has long been vociferous and specific in why they believe that there is no bubble and that prices will likely increase. Even the globally bearish Fitch included Australia in its three most favoured markets of 2013 expecting prices to turn a corner and head up a little.
SQM Research predicted in its base case scenario 2013 price gains in Darwin (+6% to +14%), Perth (+6 to +12%), Sydney (+5% to 9%), Adelaide (+2% to +5%), Melbourne (+2% to +4%), Canberra (+1% to +4%) and Hobart (+2% to +5%).
Australian Property Monitors predicted national price gains of +5 to +7% through 2014.
BIS Shrapnel forecast median house price gains of 19% in Sydney in the 3 years to June 2016, as well as gains of 17% in Brisbane, 15% in Perth and 10% in Darwin. BIS also forecasts lower gains over the same time period of 5% in Melbourne, 3% in Canberra, 6% in Adelaide and 4% in Hobart.
Personally, I've often found BIS forecasts to be overly optimistic and frequently on the bullish side.
But given that 2016 will be the sixth calendar year of the Don't Buy Now campaign, what if the mainstream market forecasters prove to be right? What if prices continue to go up instead of the 15-20% crash which has continually been promised by David Collyer for the last 3 years? How long will Prosper continue to issue the specific financial advice to potential homebuyers to sit out of the market if that base case scenario plays out?
I'm not saying that Collyer will definitely be proven wrong. My question has rather been: what happens if the market forecasters are right?
One other thing: if Australians are "disleveraging with surprising vigor" as Collyer claims, then why have prices jumped by 10% in Sydney, by 10% in Perth and by 7.5% in Melbourne?