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.
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.
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.
MELBOURNE MAY BE OUR BIGGEST CITY.
While Sydney has a larger population than Melbourne (5.23 million compared to 4.93 million), the rate of growth in Melbourne is almost 20 per cent faster than Sydney.
By 2050, Melbourne is tipped to be Australia’s largest city. It may happen sooner.
As for property prices, the Melbourne housing market has shown the highest long-term rate of capital growth in prices. In the 25 years from 1993 to 2018, no city grew faster than Melbourne.
During this time, Melbourne has been through five distinct cycles, meaning prices have fluctuated (yes, “crashed” according to media reports) and yet it has still managed to average an annual price increase of more than 8 per cent (8.1%) compared with the national average of 6.8 per cent.
Many of Melbourne’s suburbs increased by 10 per cent or more during this 25-year period.
A MEDIAN PRICE OF $5.8 MILLION?
Here’s what will happen if history repeats itself: The median price of a home in Melbourne in 2043 will be $5.8 million.
Well, that’s what I used to say.
And now, as I look at homes I sold for less than a hundred thousand dollars back in the 1980s which are now selling for close to $2 million, I think what everyone else who owned property in the 1980s thinks, “Why didn’t I keep one or two of them?”
There is one thing I have always done right in my property investing life, however – and it is this: I have always followed the adage of “Buy in gloom, sell in boom.” Glooms have never scared me.
GLOOMS BECOME BOOMS!
Back in the mid 90s, the front-page story of the Adelaide Advertiser was that the population of Adelaide was tipped to fall below a million people.
Pessimism gripped the state, not as bad, but similar to Victoria today. I told my family and friends to “Buy, buy, buy”.
In the next ten years, our properties doubled.
The same thing happened in Tasmania in the early 2000s. Things were so bad the opportunities were irresistible.
I sent the same message to my family and friends, “Buy, buy, buy.”
Over the next seven years, the value of our properties more than doubled.
But back to Victoria.
Who can ever forget the economic hardship of the early 1990s when interest rates were at 18 per cent, when the State Bank was near collapse and when thousands of mum-and-dad investors lost their savings with the collapse of the Pyramid Building Society whose debts totalled more than $2 billion? Depositors eventually got back about 50 cents in the dollar with some not being repaid until 2005.
In those days, no one wanted to touch Victoria.
But it bounced back.
VICTORIA WILL BOUNCE BACK.
As I told Debbie the other day, Victoria will bounce back again.
Yes, prices may fall a bit further but, as a person who has always loved numbers, here’s what I believe: The long-term averages will be okay.
Victoria is a state and Melbourne is a city with a long history of economic ups and downs. For those who are interested, I strongly recommend Michael Cannon’s book The Land Boomers.
Anyone who studies the history of this most beautiful state with its glorious capital will soon come to realise why it has had the greatest price rises in the country.
Having averaged 8 per cent growth, I am sure it will come close to doing the same in the years ahead. This means, of course, that, as bad as it may be right now, it will be even better in the future.
PATIENCE AND FORESIGHT.
It is often said that there are two things we need for success in business and investing: Patience and foresight.
If we have the patience to tolerate the pain of this pandemic, we can also have the foresight to realise that one day, just as the virus came into our lives, it will leave our lives. When that happens, I think Victoria is going to have the biggest boom since it first became a state back in 1851.
As for your own home, here’s a thought for those 41,819 home-sellers in Melbourne who had their homes listed for sale just prior to the six-week lockdown.
Your home’s price can’t fall without your permission.
Think about that statement, please.
If you have a beautiful home and you can afford to hang on, don’t be too quick to drop your price.
Right now, we are helping several people in Melbourne and Victoria to sell their homes. In one instance last week, we recommended that the sellers increase the asking price of their home. Yes, that’s right, in the midst of the worst pandemic in a hundred years, during the greatest gloom for decades, we told this lovely couple (after much research and investigation) that we believed there were two main reasons their home had not sold: First, the appalling stupidity of the agents handling their sale and, second, the price of the home was too cheap.
Buyers were seeing this home at its (then) ridiculously low price and their first thought was: “Why is it so cheap?”
Well, an increase of more than a million dollars has got us a lot more enthusiasm, a much better agent, and a level of excitement they haven’t felt for months.
USE THE LOCKDOWN TO DISCOVER MORE.
If there is one advantage of this lockdown in Melbourne, surely it will be to encourage home-sellers to do more research on how to sell well.
Use this time to plan how you can get the best price for your home, how you can choose and use the right method of sale with the best agent you can find.
And then, come mid-September, you may well find yourself getting a better price than you would otherwise have achieved.
There is no substitute for knowledge. With knowledge comes power and confidence.
So, please, whatever your situation right now, however bad things look for you, remember this: Things will improve.
First, if your attitude and thoughts remain strong, then second, your actions can be positive. You can acquire knowledge you didn’t have before this crisis. You can discover ways to improve your position that you would not otherwise have had the time to discover.
Use this lockdown time to do more research.
And then you might reach the same conclusion I have reached: Victoria is headed for a massive boom. If so, I will take great delight in making one of my favourite four-word statements that I often make to my friends and family: “I told you so”.
Most important of all, however, please keep yourself safe and think about how you can keep others safe.
Thank you for taking the time to read my thoughts.
MAY I HELP YOU?
If you are in lockdown in Melbourne and you have your property for sale or you are thinking of selling soon, I would welcome an email from you.
Any help I can give you, I will give you.
I love my country. I love the state of Victoria and the city of Melbourne.
But, most of all, I love the people in these places. My greatest wish is that you will be healthy, happy, and prosperous.
May the future be wonderful for you, your family, and your friends.
FOOTNOTE: Research for this article has come from Core Logic and, also, Australia’s most trusted source of real estate information: SQM Research and its dedicated and highly ethical director, Louis Christopher.
In my own life, this COVID-19 has caused some pain. My darling sister tested positive not long after her return from overseas in March. It was a terrifying time as she is in the “high risk” category. She survived but is still weak. What upset me most is how she was – and often still is – treated like a leper or a criminal. Those who test positive are sick, I hope we all remember that important point.
My wife drove for two days to collect her 86-year-old mother from a retirement village and bring her back to live with us at our 10,000-acre farm. To spend the past few months with this witty, charming, and delightful lady has given me some of the happiest moments of my life. Moments that would not have been possible if not for this virus crisis.
The protection of my mother-in-law is of huge importance to me now. The thought of losing her is simply too awful to contemplate. My heart aches for all those who’ve lost their elderly loved ones due to this awful virus. You are in my thoughts, my heart, and my prayers.
Finally, if you think there is anything I can do to help you or anyone, especially with real estate challenges, please let me know. Just email email@example.com. Thank you.
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