THE COMING REAL ESTATE BOOM IN VICTORIA

AND THOUGHTS ON THE CURRENT CRISIS

by Neil Jenman

Reading time: 14 minutes apx

Debbie Matthews is a delightful lady who works with me. In old-fashioned terms, she’s a secretary. Today – as egos have grown – she’s an “executive assistant”. As if I’m important and need an “assistant”.

The facts are, however, that without Debbie in my life, I couldn’t do much of what I do.

For 14 years, whether teaching agents how to look after customers or teaching customers how to watch out for agents, Debbie has been my invaluable helper. After my wife, Reiden, no person is closer in my working life than Debbie Matthews.

Due to the pandemic, Debbie and I have not seen each other since January. She is in one state and I am in another. We stay in contact over phone calls and ‘Zoom’ meetings.

Last week, Debbie expressed her concerns about the people in Victoria, especially those in Melbourne. She was unusually sad. The bad news was getting her down. She asked me what I felt the future held for Victoria.

When I told her, she suggested, no it was more like she insisted, I write an article. “There is so much bad news around right now,” she said, “It would be really nice if the people of Victoria could hear what you just said to me in the last few minutes.”

So, here goes. 

Let me start with three words I believe with all my heart. Indeed, I don’t think I have ever been more certain of anything in my life: VICTORIA WILL BOOM.

Yes, things look bleak for Victoria right now. And the news yesterday to start the week was heart breaking. Nineteen people dead on Sunday, many of the most beautiful and near sacred people in our society, the elderly.

The grief suffered by their relatives in Victoria must be indescribable. As for those in strict lockdown, especially large families in small flats, I do hope the hearts of the nation are with them.

All of us know – as the saying goes – “There but for the grace of God go I.”

Let’s face it, our entire country is living in fear right now.

Yes, it could happen to all of us. But let’s hope we are paying attention. Let’s hope we all care enough to do right by each other. After all, what’s a few weeks of mammoth inconvenience, even the loss of a job or income, beside a human life?

Almost everything we are “losing” today can come back one day (indeed, will come back), even the discomfort we are suffering will make us more appreciative when we get our “old” lives back, when things return to normal. The only thing we will never get back is the lives lost. Therefore, of course, nothing is more valuable than human life. We must do all we can to protect lives. Especially the elderly, without whom none of us would exist today.

In some way, to some extent, every Australian is suffering today. No one is completely untouched. Right now, however, Victorians – and especially those in Melbourne – are probably suffering the worst.

And that’s why I want to tell you about the coming boom in Victoria.

When things are bad, it’s often hard to see good times ahead. When we are surrounded by problems, when we are feeling fear and, worse, if we are also suffering the agony of grief, it is hard to see a rosy future.

I am a real estate person, but before that, I am a person.

So, let me tell you about real estate and share my thoughts as a person.

HOUSE PRICES IN MELBOURNE.

As if we don’t have enough to worry about, we are being told house prices are crashing – and going to keep crashing. And yes, property prices in Melbourne have fallen more than anywhere else since this ‘Virus Recession’ started.

In the June Quarter, Melbourne prices fell 3.5 per cent which, if it keeps going, will amount to an annualised rate of 14 per cent, pretty large compared with what we have been used to over the past 25 years.

But here’s a question for all home-owners: If you don’t intend to sell your home for the next few years, what does its value matter (aside from the “feel-good factor”)?

And why is the focus always on the home-owners (or even the home-sellers), what about the home-buyers, those struggling to get a foot on the property ladder? Shouldn’t they be excited if property prices fall?

Can’t we at least feel good for the home buyers?

HOW PRICE FALLS ARE AN ADVANTAGE.

If you are selling a home and buying another home, you are most likely going to be better off if prices keep falling.

Why?

Because most people who sell and re-buy are up-sizing.

So, if your million-dollar home is now worth 10 per cent less and you only get $900,000, you feel you have “lost” a hundred thousand dollars.

But if the home you want to buy for $1.5 million can now be bought for $1.35 million, you have “saved” $150,000.

So, when you compare the loss on your sale to the gain on your purchase, you are $50,000 better off.

So, why are “price crashes” always touted as bad news?

It’s like interest rates. Each time they drop, we are told it’s “great news”.

But what about those who don’t want to borrow money? The people who have worked hard and saved all their lives and now rely on interest on their savings for their income? An interest rate drop is not good news for them.

But maybe because most of those who rely on income from their savings are elderly folk, there is not as much consideration given to them today as in the past, and they are overlooked.

VERY FEW OWNERS TRULY “LOSE”.

Even when house prices fall, few people have really “lost” when their original purchase price is considered.

For example, the median Melbourne house price at the end of the June Quarter for 2020 is $881,369. In the March Quarter it was $913,277.

So, if your Melbourne home is worth the median, then according to the alarmist headlines, you have lost $31,908 (the difference between $913,277 and $881,369).

The figure you should be focusing upon when thinking about your property is the price you paid for it – not what it was worth in the last quarter.

Trying to sell at the top and buy at the bottom is not only near-impossible, it can really “do your head in” (as the saying goes).

No one, not even the world’s best investors, like Warren Buffet, are smart enough to buy at the bottom and sell at the top. They are just grateful to have bought when prices were lower and to be selling today when prices are higher.

So, if your home was worth $913,277 last quarter, should it really bother you that it’s worth $881,369 this quarter – especially if, as applies to most people, you bought it years ago, for say, $500,000?

Therefore, the golden rule to prevent yourself getting all psychologically distressed when looking at the worth of your property is to look at the only two prices that matter: What you paid for it and what you can sell it for today.

Most home-owners – those who bought family homes in the suburbs of our nation’s major cities, including provincial cities such as Ballarat, Bendigo, and Geelong – will never lose money if they keep their homes long enough.

And how long is “long enough”?

HISTORY PREPARES US FOR THE FUTURE.

One reason I know Victoria is going to boom again – and massively so – is because I study history. As Teddy Roosevelt said, “The more you know about the past, the better prepared you are for the future.”

History tells us that, generally, the past repeats itself. Especially economically, especially with prices. Booms turn into busts and busts turn into booms.

It has always been this way, with few exceptions since time immemorial.

Indeed, the bigger the gloom, the bigger the boom that will follow.

This is particularly true of solid commodities such as a property market, a nation’s economy, or minerals such as gold. Excluding tulips, of course, and Ponzi schemes. Bricks and mortar are nothing like tulips no matter how many “experts” tell us we are headed towards Armageddon.

Further, if anyone checked the records of the so-called experts who are predicting the worst outcomes right now, they’d make a sobering discovery: Most of their past predictions were wrong. Check out Harry Dent as probably the worst example.

The future, as much as we may doubt it when things are bleak, as they are now in Victoria, always comes back brighter and better than ever before. And usually better than most of us ever expected.

This time, I honestly believe, when the crisis is over in Victoria – and Australia – as it will be, there will be a boom like never before.

Why do I say this with such certainty?

Well, history is one factor. Plus, there is something else that few people seem to be mentioning about this pandemic. It was unexpected – totally unexpected. To think that a virus can do so much damage, well, a year ago it was beyond the thinking of most of us.

If someone had told you, just before Christmas last year, that a virus was going to emerge in March and it would bring our country almost to its knees, you’d have laughed at them.

Well, it happened. One virus came into our lives and caused havoc.

THE VIRUS CAME – AND IT WILL GO!

This virus will not last forever.

If its arrival caused a massive slump in our economy, what do you think its departure will cause?

For some reason, I can’t get an image out of my head. The end of the Second World War and people dancing the streets of our cities. I believe those days of euphoria are coming back. I believe we will be so grateful to be rid of this virus we will be dancing in the streets.

Optimism and excitement will return. In a big way, probably the biggest in our lifetimes.

CONSIDER VICTORIA.

Just consider, for a moment, the state of Victoria. Most Australians have been there and most of us love it. The state’s slogan was once: “Victoria, the place to be” and it was easy to see why.

While all our states have their own beauty, Victoria (which was also once known as “the garden state”) has a beauty that borders on magical.

In the friendly rivalry between Melbourne and Sydney, few can deny that, unlike Sydney, the city of Melbourne has real soul to it.

To anyone lucky enough to have been at the MCG to witness an AFL Grand Final, it’s a feeling that you never forget.

What of Victoria itself? What do we know about it – in addition to its beauty, its class, its love of sport and the arts?

Victoria is the second smallest state, yet it has the second highest population with 6.6 million people. Its land area is quite small, a mere 58.7 million acres.